Jim Huff, Santee Cooper

Prospects for a continuing boom in coal-plant construction in the U.S., considered bright as recently as 2006, are suffocating in a cloud of carbon-dioxide emissions. With public, regulatory and lender concern growing, many proposed plants have been cancelled. Permits issued for others require offsets for their carbon emissions, while the ones that remain in permitting are being intensely challenged. The U.S. Environmental Protection Agency must regulate carbon-dioxide emissions under the Clean Air Act, the Supreme Court ruled last year, but Congress has failed to give EPA guidelines for a national policy. Three investment banks last month announced guidelines they would use to assess the risks of investment in coal-fired generation in the absence of a national policy. Further, the largest electric utility in Kansas, citing “seismic shifts in the assumptions shaping our industry,” issued a strategic plan that knocks the crown from King Coal’s head.

For construction contractors, the immediate situation is not dire. About 25 major coal projects totaling more than 15,000 MW now are under construction. Twenty other projects totaling more than 10,000 MW have secured most of their major permits and are poised to enter construction soon.

Multimedia: Slideshow: Coal at a Crossroads

Coal projects that are well under way include CPS Energy’s 750-MW J.K. Spruce Unit 2 in San Antonio, Texas; Santee Cooper’s 600-MW Cross Unit 4 in Cross, S.C.; Springfield (Ill.) City Water Light & Power’s 200-MW Dallman Unit 4; and East Kentucky Electric Cooperative’s 278-MW Spurlock Unit 4 plant in Mays ville, Ky.

But the pace of coal-project cancellations has been quickening. Just over a year ago, investment firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group Capital promised that if their proposed leveraged buyout of Texas utility TXU Corp. was successful, they would cancel TXU’s plan to build eight 850-MW coal plants. The buyout was completed in October, and the order was canceled.

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Jim Huff, Santee Cooper

KKR and TPC also say the company, renamed Energy Future Holdings, will reduce its CO2 emissions to its 1990 level by 2020 and support a federal cap-and-trade program to regulate CO2. The utility industry’s main lobbying organization, Edison Electric Institute, also supports greenhouse-gas legislation as long as it involves all sectors of the economy and all sources of the emissions.

Concern about coal is an old story, but in the last 12 months the nature of that concern has shifted, and the intensity has flared. In the 1990s, opposition focused on coal’s lingering image as a “dirty” source of power, with sulfur dioxide, oxides of nitrogen and other emissions that fouled the air and caused acid rain.

Now the concern is primarily about coal plants’ greenhouse gas emissions, lenders’ and ratepayers’ exposure to the financial risks associated with soaring construction costs and, when federal carbon legislation is enacted, higher operation costs as well.

Jim Huff, Santee Cooper Santee Cooper’s 600-MW Cross Unit 4 will cost $755 million when completed in January 2009.

Moral Responsibility

Nearly 3,400 MW of coal projects were killed or shelved in Florida last year due to, among other things, concern about soaring construction costs and to Gov. Charlie Crist’s (R) strong stance on climate change. Crist says Florida has a “moral responsibility” to reduce CO2 and other greenhouse-gas emissions.

Tampa Electric cited uncertainty related to CO2 regulations in October, when it indefinitely postponed its $2-billion plan to build a 632-MW integrated gasification combined-cycle (IGCC) plant in Polk County. In November, a joint venture of Southern Power and the Orlando Utilities Commission cited similar concern when it scrapped the coal-gasification part of a 285-MW IGCC plant whose construction was about to begin at OUC’s Stanton station in Orlando, Fla., replacing it with a conventional gas turbine with combined cycle.

Off the Table

“Coal appears to be off the table” in the discussion about how to keep pace with the growing need for electricity, at least until new technologies are developed that significantly mitigate the impact of coal-fired generation on climate change, says Mike Hughes, spokesman for Progress Energy Carolinas, Raleigh, N.C.

CPS Energy CPS Energy’s J.K. Spruce plant is under way, but others are dropping coal projects.

Hughes notes the difficulty Duke Energy Carolinas, Charlotte, N.C., recently had in securing approval for a coal project at its Cliffside station near Charlotte. The North Carolina Utilities Commission approved only one of two 800-MW coal units that Duke proposed and the Dept. of Environment and Natural Resources’ Division of Air Quality (DAQ) required the utility to fully offset the new unit’s CO2 emissions by 2018.

The new Cliffside plant is “very likely to be the last coal plant you will see coming from Duke,” says Ellen Ruff, the utility’s president. That could change if Duke’s nuclear capacity additions are stalled or if new technology were developed that would enable the CO2 emissions of coal plants to be economically captured and sequestered, she adds.

Coal projects with little or no potential for CO2 capture and sequestration continue to face battles. In October, Kansas Secretary of Health and Environment Roderick Bremby denied an air permit for the $3.6-billion project proposed by Sunflower Electric Power Corp., Hays, Kan., to build two 700-MW coal units at its Holcomb station in western Kansas. He based his decision on the U.S. Supreme Court’s landmark April 2007 decision that CO2 meets the broad definition of an air pollutant under the Clean Air Act.

“It would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing,” said Bremby in denying the permit. The state Legislature has passed bills that would give the Sunflower project a second chance by taking away Bremby’s authority to deny an air permit on CO2 grounds. But Gov. Kathleen Sebelius (D) says she will veto it.

Dominion Virginia Power faces an important coal fight of its own. The utility wants to build a 585-MW, circulating-fluidized-bed plant in Wise County to be fired by a mix ...