July 14, 2004
Indiana should take national lead in clean-coal technology
WEST LAFAYETTE, Ind. Indiana has enjoyed both low electricity rates and a stable power grid, thanks to a heavy reliance on coal and a well-designed transmission system. Using coal for most of the state's power needs has, however, contributed to a dubious distinction: Indiana is the sixth largest toxic release polluter in the nation, according to figures released in June by the Environmental Protection Agency.
Does that mean we should try to reduce our reliance on coal in favor of more costly natural gas? On the contrary, just the opposite is true. There is an alternative: clean-coal technology that primarily involves "coal gasification" and cleaning, then burning the cleaned gas to produce electricity in gas turbines similar to jet engines. The waste heat from these turbines is used to create steam, which is again used to generate electricity in steam turbines. This advanced technology, called integrated gasification combined cycle technologies or IGCC has the potential to allow new coal-fired power plants to be built in Indiana without adding to our state's pollution totals. Not that this is a new idea for Indiana; we have had such a plant generating electricity since 1995, one of two such full-scale IGCC systems in the country. But again, this technology comes with a cost a roughly 20 percent higher capital cost when compared to alternative technologies.
Still, IGCC technologies hold promise to keep Indiana from succumbing to energy woes plaguing other states.
A recent Electric Power Research Institute report observed that "the simultaneous convergence of several independent issues has caused serious turmoil in the business aspects of the electricity sector. The impact of these difficulties is an inability to plan, an unwillingness to invest and a stalemate in strategy for achieving a way out of the current dilemma."
While these conclusions may be true for other areas of the country, they don't seem to apply to Indiana.
Indiana's electricity prices are among the lowest in the nation only two states have substantially lower average prices Kentucky and Wyoming, which are also heavy coal users. As prices for competitive fuels have skyrocketed, coal prices have remained the same in recent years. Since 1985, Indiana's real (inflation-adjusted) electricity prices have been falling, and Purdue's State Utility Forecasting Group projects that prices will remain steady for at least the next five years. At the same time, there have been no serious outages in our system in recent memory, not even during the blackout of August 2003.
Historically, in terms of the two things that really matter to consumers price and reliability Indiana is in far better shape than the national industry. But what about the future? Can we continue to be an island of tranquility? Can we maintain our competitive advantage while meeting stricter environmental rules on the horizon?
The clear answer for Indiana is IGCC technologies.
William Rosenberg of The Kennedy School of Government at Harvard University suggests that we need to create a consortium of federal, state and industrial partners to reduce the costs of IGCC plants. The federal government would reduce financial risk by loan guarantees, allowing much of the capital to be raised with bonds; market risks could be reduced by state regulatory commissions pre-approving plant capacity additions and allowing higher rates of return on such investments; and the private sector could provide the roughly 20 percent equity capital needed to complete the financing package.
If implemented, the plan would give new life to our state's energy resource, protect the environment and help maintain a cost advantage critical to Indiana's future economic growth that of our electricity continuing to be among the cheapest, most reliable and, using IGCC technologies, among the cleanest in the nation.
Tom Sparrow is a professor of industrial engineering and economics at Purdue University, past director of the State Utility Forecasting Group, and is currently director of Purdue's Center for Coal Technology Research.
A publication-quality photograph of Tom Sparrow is available at https://news.uns.purdue.edu/images/sparrow.jpeg