News Column

High Costs Bury AEP's Carbon Plan

July 15, 2011

Dan Gearino and Spencer Hunt

American Electric Power logo

High costs have trumped high hopes in the quest to reduce globe-warming pollution from coal-fired power plants.

A day after American Electric Power said it would halt a project to bury carbon dioxide deep beneath a coal-fired power plant in West Virginia, experts say the decision reflects a seismic change in the economics of generating electricity.

Since AEP announced its $668 million "carbon-capture" plan in 2009, estimates of the cost of the technology have grown. Natural-gas prices also have plummeted, and Congress has been unable to agree on a system for regulating carbon dioxide.

"Urgency has been diminished," said Chris Lafakis, an energy economist for Moody's Analytics.

Those same dollars might be better spent on building natural-gas-fired power plants, he said.

"It's a very different kind of world we're looking at now," said Kenneth B. Medlock III, an energy economist at Rice University in Houston.

One of the key differences is that Congress isn't close to an agreement about carbon regulation. As recently as 2008, many observers viewed such a deal as inevitable and those assumptions made carbon capture seem more feasible, he said.

Industry officials say clean-coal research is still very much alive. Southern Co. is testing a similar carbon-dioxide system at its Barry power plant in Alabama, said Revis James, director of the Electric Power Research Institute's Energy Technology Assessment Center.

"The stoppage of work at Mountaineer is not going to fundamentally change what we are going to do," James said, referring to the name of the AEP plant.

A new coal plant with carbon capture would cost $137 per megawatt-hour, according to the most-recent forecast from the Energy Information Administration. That is based on the estimated cost of construction and operation in 2016. The amount is more than double the cost from a gas-fired plant, which is $62.

Those numbers do not reflect the costs to modify plants such as Mountaineer.

AEP officials said the decision was tied to the sluggish economy and lingering uncertainty about federal energy policy. Spokesman Pat Hemlepp said the rising cost of carbon capture was not a significant factor, noting that "costs always rise" on construction projects.

The company also cited difficulties in getting state regulators to approve charging customers for the costs of carbon capture. The company, which is active in 11 states, has run into these kinds of problems in Indiana, West Virginia and Virginia.

"We were willing to pay our fair share," said Byron Harris, director of West Virginia's Consumer Advocate Division, which is the equivalent of the Office of the Ohio Consumers' Counsel. What the state's regulators were not willing to do was pay a disproportionate share of the cost, he said.

In Ohio, AEP has made carbon-capture research part of a proposed rate increase, but the amount of the charge has not been disclosed. Regulators have not taken action.

Federal energy officials have, for years, supported the idea of burying the millions of tons of carbon dioxide, the gas they've deemed the main culprit behind global warming. Carbon would be captured before it enters the atmosphere and then buried as much as 1.5 miles underground.

The AEP plan, announced with much fanfare in 2009, marked the first time that carbon dioxide was to be captured and buried at a U.S. power plant. AEP even paid for the $120 million project, a big switch from other research efforts largely funded by federal energy grants.

The system was intended to capture only 110,000 tons of carbon dioxide a year, a fraction of Mountaineer's global-warming output. The coal plant annually belches between 7.9 million tons to 9.8 million tons of carbon dioxide, according to U.S. Environmental Protection Agency data.

The main goal was to reduce the substantial costs involved in filtering out the carbon dioxide, compressing it to a liquid and pumping it underground. Existing carbon-dioxide systems would drain a third of a coal plant's electricity and double consumers' bills.

Officials were so supportive that the Department of Energy promised to award a $334 million grant in December 2009 to help fund about half of the now-canceled second phase of the project. It was going to use a "scaled up" system to bury 1.5 million tons of carbon dioxide a year, starting in 2015.

AEP hired Battelle to help run the carbon-capture program at Mountaineer and monitor its results. The Columbus-based research giant was expecting to take a similar role in the second phase of the project, according to Neeraj Gupta, Battelle's senior research leader in carbon management.

Battelle still will have a prominent role in Energy Department-funded carbon projects, Gupta said. The work includes FutureGen, a $1.3 billion project to capture and bury carbon dioxide from an Illinois power plant.

The need for, and cost of, such projects are constantly questioned by several environmental advocates, including Nachy Kanfer, the Midwest coordinator of the Sierra Club's coal-to-clean-energy campaign.

"What this means is that it's clearly much cheaper to clear the air by investing in alternative energy," Kanfer said of the Mountaineer decision. "It's just way too expensive to make coal cleaner."

Source: Copyright (c) 2011, The Columbus Dispatch, Ohio

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