State hopes to trade clean coal for older coal plants

"We want to encourage investments that will make our energy supplies cleaner, cheaper and more reliable," Rendell said in a statement after announcing the initiative in Scranton recently.

State officials are targeting the owners of 14 coal-fired plants that produce 250 megawatts or less and are at least 30 years old. But to comply with advancing federal air quality standards, the plant's owners must spend hundreds of millions of dollars to install equipment that can reduce pollutants like nitrogen oxides and sulfur dioxide, which contribute to acid rain and smog, state officials say.

"Putting many millions of dollars into those plants begins to look like a very tough investment decision," said Kathleen A. McGinty, the state secretary for the Department of Environmental Protection.

A coal-to-gas plant costs about $1 billion to build, making it more expensive than upgrading or building a conventional coal-burning plant. A couple small coal-gasification plants exist in the United States — one is owned by Tampa Electric — and power companies are laying groundwork to build the first major plant, while officials in various states are trying to woo them.

Adding urgency to the chase is the skyrocketing cost to operate a natural gas-fired power plant.

"They're widely viewed as the future of power generation because (natural) gas prices are totally out of control," said Douglas Biden, the president of the Electric Power Generation Association in Harrisburg. "Most states want to be the first one on the block to have it."

However, the investment may be risky enough that the first major plants will have to be built in monopoly states — where regulators allow the cost to be passed on to ratepayers — and not a state like Pennsylvania that allows competition, Biden said.

DEP officials tout the plants as a much better investment because pollution emissions are much lower than a conventional coal plant and the gas that is generated from the coal can be sold to industrial customers as well as being used to generate electricity.

In addition, the coal-to-gas plants operate more efficiently, getting more energy from the coal while producing less waste and using less water in the cooling process, they say.

Under the administration's initiative, tax-free bonds would be used to help finance the coal-to-gas plants, McGinty said. A utility has until 2007 to commit to a new plant and must have the facility up and running by 2013.

To boost participation, the state has lined up U.S. Steel Corp. to buy the natural gas and encouraged other manufacturers to do the same.

With more than 46,000 megawatts of generation capacity, Pennsylvania is the country's second-largest power producer, Biden said. About 8 percent of that capacity comes from the smaller and older plants targeted by the Rendell administration. Should a utility sign up for the program, the state will ask the federal government to waive air quality standards for the coal-fired plant until 2013, state officials said.

Pennsylvania's coal-fired power plants ranked second in the nation for sulfur dioxide emissions in 2003, third in mercury emissions, fifth in carbon dioxide emissions, and seventh in nitrogen oxide emissions, according to an analysis of federal government data by the environmental advocacy group PennEnvironment.