Utilities in U.S., Canada take new look at coal

According to industry sources, volatile natural gas prices are seen as the main reason utilities are taking a fresh look at coal. "I think probably the main driver is concern about future gas prices," said Jeff King, senior resource analyst with the Northwest Power and Conservation Council, a regional energy planning group based in Portland, Oregon.

In the western U.S., construction began late last year on a third 400-megawatt unit at the Springerville coal-fired plant in Arizona which is operated by utility Tucson Electric Power Co., a unit of UniSource Energy Corp. It is scheduled to be operational by December 2006.

Its completion will come 16 years after the second unit entered commercial operation at Springerville and bring to a close an era when power plant developers have been largely wedded to new combined cycle natural gas-fired technology.

Other projects under consideration include a third 800 MW unit at the Intermountain coal-fired plant in Utah.

A spokesman for the Los Angeles Department of Water and Power, which has a 44 percent stake in Units 1 and 2, confirmed that the Intermountain Power Agency has applied for air permits for a third unit but said no decision had yet been taken as to whether to proceed with the project.

LONG DELAY

The original plan was to build four units at the plant but construction stalled after the completion of the first two units in 1986 and 1987, respectively.

In New Mexico, privately held Steag Power LLC has expressed interest in building a 1,500 MW coal-fired facility, scheduled to begin commercial operation around 2008.

"I think people are taking a look at their future generation needs and the price trends in natural gas, the volatility, is quite evident," said Janet Gellici, executive director of the American Coal Council.

Gas prices in California, for example, soared from $2.30 per million Btus in 1999 to $58.00 during the 2000-2001 energy crisis, in turn pushing up power prices in a state that depends on gas-fired plants to generate nearly half of its electricity. They are currently around $5.00.

Industry sources said the economics driving renewed interest in coal were the same as those which has prompted companies on the West Coast such as Sempra Energy to look at building terminals to import liquefied natural gas.

"People are building LNG (terminals) on the same belief that (natural) gas will remain north of four to five dollars (per million British thermal units) for some time to come," said Jan Smutny-Jones, executive director of the Independent Energy Producers Association.

North of the border in Alberta, TransAlta Corp. is planning to build two new 450-MW units adjacent to the Keephills coal-fired plant. No target date has yet been set for when the Centennial project will be completed.

TransAlta and EPCOR Utilities are building a third unit, with a capacity of 450 MW, at the Genesee coal-fired plant, also in Alberta. The unit should be completed in the first quarter of 2005.