Indiana coal-to-gas project bucks industry trend

EDWARDSPORT, INDIANA - In the heart of southwestern Indiana's coal country, Duke Energy Corp. crews are building what the company's CEO calls the power plant of the future — a $2.35 billion complex where coal will be turned into a gas, stripped of pollutants, then burned to generate electricity.

The project, one of the "clean coal" technologies supported by President-elect Barack Obama, will become by far the nation's largest coal-gasification plant when it goes online in 2012, generating enough power to light more than 200,000 homes.

But opponents suing to halt the 630-megawatt plant near Edwardsport, Indiana, call it a colossal waste of money that will saddle the utility's Indiana customers with years of rate increases and release tremendous amounts of carbon dioxide, a greenhouse gas tied to global warming.

"Once you do all the cost assessments, the fact is this is going to gouge ratepayers. The cost of this just continues to skyrocket," said Bruce Nilles, a Madison, Wis.-based attorney for the Sierra Club, which is suing to stop the plant.

Indiana regulators approved the project a year ago even though utilities nationwide have pulled the plug on 65 coal power plants since early 2007 amid rising construction costs and expectations that Congress will limit greenhouse gas emissions.

The U.S. Department of Energy in January yanked funding for the FutureGen coal plant in Mattoon, Ill., after its price ballooned to $1.8 billion, nearly double the original cost. And in July, NRG Energy Inc.'s CEO canceled a coal-gasification plant in New York, declaring that it had become too costly and was "ahead of its time."

As they await Congress' action on greenhouse gas caps, many utilities and regulators have taken a cautious approach because those rules will dictate what type of plants they pursue.

"There's a lot of people who are just in a kind of holding pattern waiting for whatever's going to happen," said American Coal Council spokesman Jason Hayes.

Coal provides half the nation's power needs but accounts for 40 percent of its carbon dioxide emissions, as well pollutants such as mercury that can lower the intelligence of children whose mothers eat tainted fish during pregnancy.

Gov. Mitch Daniels says the Edwardsport plant's ability to remove pollutants from coal will reinvigorate southwestern Indiana's coal mining towns by opening a larger market for the region's high-sulfur coal deposits.

He also says the plant will provide Indiana with some of the 3,000 new megawatts the state is projected to need by 2012 — even though it will mean higher utility bills.

"If we want cleaner air, it will cost something more," Daniels said.

Traditional coal power plants burn pulverized coal and then spew pollutants through smokestacks.

But Duke's plant along the White River will convert coal into a synthesis gas that's processed to remove pollutants such as mercury and sulfur dioxide. The gas will then be burned in turbines to produce electricity, while heat from that process is tapped to create steam that generates power in separate steam turbines.

Jim Rogers, CEO and president of the North Carolina-based utility, called the plant an "Apollo project for energy," comparing its technological innovations to the United States' manned lunar program during a July ceremony at the construction site.

"With this plant we're taking a giant leap for our country," he said.

That leap, however, has a hefty price tag. The plant's cost originally was estimated at $1.3 billion to $1.6 billion. Last spring, Duke Energy raised that estimate to about $2.35 billion.

Duke's Indiana customers are expected to see about an 18 percent rate hike to pay for the project, which is receiving more than $460 million in government tax incentives.

Grant Smith, executive director of the Citizens Action Coalition of Indiana, warns that the plant's budget could top $4 billion if the federal government eventually requires utilities to capture and inject underground the carbon dioxide their plants create.

"This is a really horrible investment from any business standpoint. The only reason this plant is being built is because the ratepayers are being held as collateral," Smith said.

The coalition and the Sierra Club have accused Daniels of being "too cozy" with the coal power industry. They contend Duke could be spending its money more cost-effectively — and with no new emissions — on renewable energy such as the wind farms springing up across the Midwest.

Duke Energy spokeswoman Angeline Protogere defends the plant and its higher cost, which she said did not become clear until Duke began negotiating with contractors after the project was approved.

She said the plant will produce about 75 percent less sulfur dioxide, nitrogen oxide and mercury than the traditional 160-megawatt coal-fired plant it will replace, even though that plant runs only about 30 percent of the time.

"This will be a larger plant that will produce more power and operate longer yet produce cleaner power than the existing facility," she said. And she said Duke wants to study ways to equip the plant to "capture" some of the 4 million tons of carbon dioxide it would release annually. Such a step would help the plant comply with any greenhouse gas caps Congress might impose, but also boost its cost. Protogere said it's unclear by how much because no studies have been done.

Energy expert Daniel M. Kammen said the Edwardsport plant could provide a key lesson for the coal industry, in which future plants will likely be those with low carbon dioxide emissions.

"The new economics of coal need to reflect the price of holding down greenhouse gases," said Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley. "If this is a plant where the company can do some R & D learning about how to bring those costs down, that's a step forward."