power plants characteristics and costs potx

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CRS Report for Congress

Power Plants:

Characteristics and Costs

November 13, 2008

Stan Kaplan

Specialist in Energy and Environmental Policy

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Summary

"This report analyzes the factors that determine the cost of electricity From new power plants These factors — including construction costs, fuel expense, “environmental regulations, and finncing costs — can all be affected by government ‘enefgy, environmental and economie policies Government decisions io influence, ‘ornot influence, these factors can largely determine the Kind of power plants thatare built inthe future For example, government policies aimed at reducing the cost of constructing power plants could especially benefit nocear plants, which are costly to bu, Policies that reduce the cost of fssi fuels could benefit natal gas plas,

'which are inexpensive to build but rely on an expensive fuel

“The report provides projections ofthe possible cost of power from new fossil, nuclear, and renewable plants built in 2015, illustrating how differen assumptions, such as forthe availability of federal incentives, change the cast rankings of the technologies

None of the projections is intended to be a “most likely” ease, Future unceraities preclude firm forecasts The rankings of the technologies by eost are therefore also an approximation and should not be viewed as definitive esiimates a lhe relative eost-cornpetitiveness of each option Te value of the discussion is not sa souree of pointestimates of future power costs, but asa source of insight ino the factors that ean determine future outcomes, including factors that ean be influenced by the Congress,

Key observations include the following:

+ Government incentives can change the relative costs of the eneratiag technologies, For example, federal loan guarantees ean turn nuclear power from a high cost cchnology toa reativey low ‘cost option,

+ The natural gas-fired combined eyele power plant, the most ‘commonly bull type of large natural gas plant, is a competitive enerating technology under a wide variety of assumptions for fuel price, constuction cost, government incentives, and carbon controls This rises the possibility that power plant developers to low the pattern ofthe 1990s and rely heavily on natural gas wil continue

plans to meet the need fr new generating capacity

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Introduction and Organization

‘Types of Generating Technologies Electiity Demand and Power Plant Choiee and Operation Generation andl Load

[Economie Dispatch and Feat Rate Capacity Factor

Utility Seale Generating Technologies Supercritical Pulverized Coal

Integrated Gasification Combined Cyele (IGCC) Natural Gas Combined Cycle Nuclear Power Geothermal Power Wind Power Solar Thermal and Solar Photovoltaic (PV) Power

Factors that Drive Power Plant Costs Government Incentives

Renewable Energy Production Tax Credit

Noclear enerey production tax credit ‘Loan Guarantees for Nuclear and Other Carbon-Contol “Technologies

Energy Investment Tax Credit

Clean Coal Technologies Investment Tax Crelt State and Local Incentives

Capital and Financing Coss Construction Cost Components and Trends Financing Poser Plant Projets

Fuel Coss

Air Emissions Controls for Coal and Gas Plats Conventional Emissions Carton Dionide

Financial Analysis Methodology and Key Assumptions Analysis of Power Project Costs Case I: Base Cise

Key Observations Discussion

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Discussion

Case 5: Carbon Contols and Costs Key Observations Discussion

Appendix A Power Generation Technology Process Diagrams and Images Pulverized Coal Integrated Gasification Combined Cyele Coal (GCC)

Natural Gas Combined Cycle Nuclear Power

Wind Geeshermal

Solar Thermal Power Solas Photovolaic Power

Appendix B Estimates of Power Plant Overnight Costs ulvesized Coal Integrated Gasification Combined Cyele (IGCC) Coal Nucl Natural Gis Combined Cycle Wind Georhermal Solar Thermal Solar Photovolaic

Appendix C Estimates of Technology Costs and Elfieieney with Carbon Capture Pulverized Coal with Carbon Capture

IGCC: Coal and Natural Gas Combined Cycle with Carbon Capture

Appendix D, Financial and Operating Assumptions Appendix E List of Aeronyms and Abbreviations

List of Figures

Figure 1, Mustratve Lond Curve

Figure 2, Total US Electie Power Generation by Eaergy Sousee, 2097 Figure 3 Coal and Natural Gus Constant Dolla Prive Trends

Figure 4, Uranium Price Trends

Figure 5 FIA's Projections of S 2191 CO, Allowance Pres (20068 por Metric Ton of CO, Euivalent) Figure 6, Comparison of EA's Reference Case Coal Prices and S 2191 Core Case CO, Allowance Prices Figure 7, Natural Gas Price Treads Henry ub Spot Price)

Figure 8, Projection of Natural Gas Prices to Eleiric Power Plant, 2006 S per MMBA Figure 9, Process Schematie; Pulverined Coal without Carbon Capture Figure 10, Process Schematic: Plverized Coal with Carbon Capture Figure IJ, Representative Pulveized Coal Plant: Gavin Plant (Ohio)

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Figure 13, Process Schematic: GCC with Carbon Capture Figure 14 Representative IGCC Plan: Polk Plant (Florida) Figure 15 Process Schematic: Combined Cycle Power Pant

Figure 16, Representative Combined Cyele: MeClai Plant (Oklakoma) ‘Figure 17 Process Schematic: Pressurized Water Reactor (PWR) Figure 18 Broeess Schematic: Boiling Water Reactor (BWR) Figure 19 Representative Gen IIMIL+ Nuclear Plant: Rendering of the ‘Westinghouse APLDON (Levy County Projet, Florida Figure 20 Schematic of » Wind Turbine

Figure 21 Representative Wind Parm: Gray County Wind Faem (Kansas) Figure 22 Wind Turbine Size and Scale (FPL Enetgy)

Figure 25 Process Schematic: Binary Cycle Geothermal Plant Figure 24 Representative Geothermal Plant: Raft River Plant (Idaho) Figure 25, Process Schematic: Parabolic Trough Solar Thermal Pit Figure 26, Representative Solar Thermal Plant: Nevada Solar One Figure 27 Nevada Solar One: Parabolic Collector Detail

‘Figure 28, Process Schematic: Cents Station Solar Photovoliae Poster Figure 29 Representative Solar PV Plan: Nellis Air Force Base (Nevada) Figure 30 Nellis AFB Photovolaie Array Detail

List of Tables

‘Table 1 Shares of Total National Electric Generation and General Capacity 2006 table 2 Emission Contols as an Estimated Percentage of Total (Couts for a New Pulverized Coal Plant ‘Table 3 Estimates ofthe Change in ]GCC Plant Capacity and Capital ‘Cost fram Adding Carbon Capture ‘Table 4 Estimated Base Case Restlls

‘Table 5 Benchmark Comparison wo Natural Gas Combined Cyeie Plane Power Casts: Base Case Values ‘Table 6 Elfect of Public Power Financing on Base Case Results ‘Table 7, Power Costs with Additional Government Incentives Table 8 Benchmark Comparison o Combined Cycle Power Coss Additional Government Incentives

‘Table 9 Benchmark Comparison w Natural Gas Combined Cycie Plane Power Casts: $0 Higher Gas Price ‘Table 10, Change in the Base Case Gas Price Needed to Equalize the Cost of Combined Cycle Power with Other Technologies ‘Table 11, Effect of Higher and Lower Capital Costs on the Cost of Power ‘Table 12 Benchmark Comparison to Combined Cycle Power Costs: igh and Lower Capital Costs ‘Table 13 Effect of Curent Technology Carbon Contrals on Power Plant Capital Cost and Efficiency “Tahle L4, Estimated Annualized Cost of Power with Caton Canteols Table 15, Change in the Prige of Natural Gas Required to Equalize the

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New Electric Generating Units

Introduction and Organization

‘The United States may have o bul many new power plans 1 meet growing slemand for electric power For example the Energy information Administration (EIA) estioates thatthe nation will have w eonsiruc 226,000 megawatts ‘elecirie power genetating capacity by 2030,' This isthe equvalentof about 480 large of new power plants, Whatever the number of plans aetwally built, dfTerent combinations ‘of fosil, nuclear, or renewable plants could be built meet the demand for now generating capacity Congress can largely determine whieh kinds of plants are scully built though energy, environnsenal, and economic policies that influence power plant costs

‘This repom analyzes the factors that determine the cost of electricity rom new power plants These factors — including constuction costs, fuel expense ‘environmental egulations, ad Financing costs — can all be affected by govesnment ‘energy and economic polices Government decisions to influence, or not influence these Factors ean largely determine the kind of power plants that are built im the fuuue Forexample, government policies aimed at redaeing the cost of ennstructing power plants could especially benetit nuclear plan’, which are costly 10 build Policies that reduce the costo fossil els could benefit natural gas plants, which are inexpensive to build but rely on an expensive fuel

The report provides projections of the possible cost of power for new fossil, nuclear a renewable pints builtin 2015, The projections llusrrte how diferent assumptions suel as for the availabilty of federal incentives, change the cost rankings ofthe rechnologies Key observations inelude the following:

# Government incentives can change the relative costs of the enerating technologies, For example, federal lon guarantees can tum nuclear power from a high cost technology toa relatively low ‘cost option,

+ The natural gassed combined eyele power plant the most commonly built type of large natural gas plant, is a competitive

[HLA an independent arm of tae Department of Energy sue pimary public source of Sinisics nd forecasts forthe United Stites, The estimated amount of new satis capacity taken fon the Excel output spacadshost for he Aral Energy Outoos 2008 poi, Ngle at ETA foreast assume to change dhe ls ad epltons Inetfeecarthe we dhe forecasts ate male

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None of the prnjgctions is imended 4õ be a “most likely” a generating echnology undera wide variety of assumptions for fuel price, constriction ‘This raises the possibility that power plamt deveiopers will continue cost, government incentives, and carbon controls to Tallow the pattern of ie 199Ds and rely heavily on natueal gas plants to meet the need for new power generation,

With curment technology coal-fired power plants using carbon ‘capture equipment are an expensive source of electricity’ in aearbon, control case, Other power sources, such as wind, nuclear, geothermal, and the natural gas combined eyele plant without ‘coplure technology, curently appear to be more economical

Faure

luncertaities preclude fim forecasts The value of this discussion isnot asa source ‘of pointestmites of future powereosts, but asa source of insight into the factors that ccan determine future outeomes, ineluding factors that can be influenced by the Congress

"The main body of report is divided into the following sections Types of generating technologies;

Facors that drive power plant costs Financial analysis methodology: ‘Analysis of power project costs,

“The report also ineludes the following appendixes:

Agfenli Amtoenspo*erietraiontelndloppeesedigams Appendixes B and C provide the data supporting the espital cost estimates used in the evonomie analysis Appendix C also shows how operating eosts and plant efficiencies wete estimated foreestain ‘carbon contra technologies,

Appendix D presents te financial and operating assumptions used inthe power cost estimates

Appendix Eis alist of acronyms used in the por,

Types of Generating Technologies

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icity Demand and Power Plant Choice and Operation

Generation and Load The demand for electricity (“loud”) faced by an eleetic power system varies moment fo moment with changes in business and residemial activity and the weather Load begins growing inthe moming as people Waken, peaks inthe early afternoon, and bottoms-out in the Ite evening and early rmomning, Figure 1 isan illustrative daily Toad curve

‘The daily load shape dictates how electric power systems are operated AS shown in Figure I, there isa minimum demand fr electcity that occurs throughout the day ‘This base level of demand is met with “baseload” generating units which havelow variable operating eosts” Baseload units ean alsomeet some of he demand above the base, and can reduce output when demand is unusually low The units do this by “taming” generation up and down fo meet fluctuations in demand,

‘The greater part oF the daily up and down swings in demand are met with “imtrmediate” units (also refered toa lad-following or eycling units), These units ‘can quickly change thei output vo match the change in demand (thats, they have fast “ramp rate”) Load-following plants can also serve as “spinning reserve" units tha are running but not putting power on the grid, and are immediately availabe to ‘meet unanticipated increases in load or to back up other units that go offline due to breakdowns Figure 1 Ilustrative Load Curve Ệ a =| Sn ig =

‘The highest daily loads are met with peaking units These unitare typically the ‘most expensive t operate, but can quickly startup and shutdown to meet brief peaks in demand Peaking units also serve as spinning reserve, and 2s “quick slant” units able ogo from shutdown full load in minutes A peaking unit sypcally operates foronly a few hundred hours a year

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Economic Dispatch and Heat Rate The generating unis available meet system Toad are “tispateied”(puton- line) inorder of lowest variable cost This is refered to asthe "economic dispatch” ofa power system's plants,

For a plat that uses combustible Fuels (sueb as coal or natural pas) key driver ‘of variable costs isthe eficieney with whieh the plant converts fuel lo electiity 38, measured hy the plan's “heat rate.” This isthe fuclinpt in British Thermal Units {bis needed to produce one Kilowatchout of electricity cusp, A lover heat rate ‘equates with greater efficieney and lower variable costs, Other things (most importantly, fuel ard environmental compliance casts) being equal, the lower & plant's heat rate, the higher it will standin the economie dispatch prionty order Heat Fatesare inappliable fo plans that do not use combustine Tues, such as nuctear and

hnon-biomass renewable plants

As an illustration of economie dispatch, consider 2 uility system with coal rucleae, geothermal, natural gas combined cycle, and natural as peaking units ints systenn

+ Nuclear, coal, and geothermal baseload units, which are expensive tobuild but havelow fuel eostsand therefore variable costs, will be the firs units tobe pat online Other than for planned and forced ‘maintenance, thesebaselosd generators wil run thoughout the ear

+ Combined cycle units, whieh ate very efficient but use expensive alufil gas as fue, will meet intermediate Toad ‘These eycling plants will ramp up and down ding the day, and will he wored on find off dozens of times a year

+ Peaking plans, using combustion turbines, ‘are relatively ineiciem andbum expensive natural gas, They run only as needed meet the highest Toads."

An exception to this sraightfonward economic dispatch are “variable renewable” power plants — wind and solar — that do not fall neatly imo the categories of bascload, intermediate, and peaking plans Variable renewable generation i used as availabe to meet demand Because these resoutces have vety Tow variable easis they are ideally used to displace generation from gasstted

"A combustion rine san adapionof jt engine technology to elec power senecation A soBpxion rine canither be ised tand-slone 3 peaking Uni of par oa mate ‘ommplex combined eyele plant use to mest intenmodite and baseload dena

“This alignment of geacrating tecologies is for new constuction using cunt technology "The existing mix of generating uss ih the United Sates comity ma ‘ceptions to this alignment of load t types of genensting pants, de 0 changes lm leeology and cconomies For istance, Here ate ntl gi al oie units ik ‘scales go as baseload stations that now opsnfcas ccng or pea uel prices ad por etfiekeney has made them economically marina Some of these older Plants were but cose to load centers axl are now use as reliability mustenin (RMR) [Eeneraorshiatunder the stability ofthe transmission grid certain eiteomntanoes mst be aperated repalessofeos toma

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‘combined eyele plans and peaking units with higher variable costs However, if Wind or sola generation is available when demand is tos (such asa weekend or in the case of wind, in the evening), the renewable ousput could displace coal generation

Power systems must meet al firm loads at all times, but variable renewable plants do Hot have firm levels of ouipat because they aze dependent on the weather “They ate not fm resources because there is no guarantee thatthe plant ean generate ta specific load level ata given point in time.* Variable renewable generation can be mide fren by linking wind and solar pants t electricity storage, but with current technology, storage options ave limited and expensive.”

Capacity Factor As discussed above, baseload unis cun more often than ‘yeling unis, and peaking units operate the least often The utilization of 8 enerting uit is measured by its “capacity factor.” This i the rao ofthe amount ‘of power generated by aunt fora period of time ttypicallya year? to the maxim ziount of power the unit eould have generated iit operated a full opt, non-stop For example, the maximum amount of power a 1.000 megawatt (MV) uni ean ‘generate ina year is 8.76 million megawatt-hours (Mwh), calculated as:

1,000 MW x 8.760 hours ina year = 8.76 million Mwh,

Ieuhis unit setnaly proiaced only 0 million Mh its capacity factor would be 46% (calculated as 40 million Muh divided by 8.76 million Mw),

Note in this ealculation the distinction hetween capacityand energy Capacity ‘she potential instantaneous output ofa generating unit measured in watts.” Enesey isthe actual amount of electricity generated by a power plant during time period, ‘measured in wat-hours ‘The units are usually expressed in thousands (kilowatisand kilowatt-hours) or millions (megawatts and megawatthout)

* Hydroelectric generation sa povial case Hyd generation lspachable capacity tothe degree there is water inthe dam's reservoir Howoven, very Bow cost and is em, ‘operators hase consider hot onls hove mach water curently available, Dut oe rch tay be svalleble in apcoming months, ad coming demas forthe water, sch a ‘inking water supply eigation, and reteaion These Factors make Bye tispateh ‘cisions very comple, In geeral yo suse ta mse oad dering high dean how nen it ean displace expensive peaking an eeling units but if iyo is abundant it ean ko displace hassload col plants

* Forexampl, a solar prject developer decided to lave storage and ater “extras cu of el plan in onto make coroners viable” “Slorage: Solar Power's Next et." Plats Gaal Power Report, Novembe I 207

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‘The diflerence between actual and theoretical maximum output is eaused by planned maintenance, mechanical breakdowns (Forced outages) ad any instances in which the plant is backed-down from maximum output due w lack of load or because the plants powers more expensive than that from other plants Iissare for 4 plant ta have a capacity Tactor of LOOS, Baseload plants typically have capacity factorsof about 10% or greater, peaking plants about 25% o ess, and cycling plants Fallin he mide

Utility Scale Generating Technologies

‘The types of generating technologies discussed inthis report are olen referred to as “uit scale" plants for baseload or intermediate service These weehnologies ‘generate larpe amouns of eletricty ata singe site tor transmission ta customers 1 2006, large baseload and intermediate service power plants accounted for about S6 of total power generation in the United States” Uity scale plans typically have generating capacities ranging from dozens to over a thousand megawats

‘The one smaller seale generating technology covered in this report is solar photovoltaic power The capacity of the largest US central station solar photovoltaic plant at Nelis Ais Force Base in Nevada, is only 4 MW Because of hele small size, high eapitel costs and low wilization ates, solar photovoltaic plants built with current technology have very high electricity production eosis, Central station solar photovoltaic power is mnetheless includes in the cost analysis beens ‘of public interest,

‘The repon excludes peaking plans, which play an important but smal rate in the powersystem The report aso excludes oiled generation, whic has al but slisappeared from the nation’s generating mix because ofthe high cost of the fue 1 1978, oi-Fired plants produced 22% ofthe nation’s electricity By 2007 the eil- Fired share was less than 2.” Significant construction of new osLfned plants is not expected

"The estimate of 86° of 2006 generation from large baseload and imermeste generating units as computed fromthe EIA-S60 (generating capaci) and LIA 0068920 ensation) lta files for 206, avilable at pews ea doe ovleneaeecctypage data he ‘The calelation sumed that plants with weapactytotor of 25% or great fall at te intermedinerseloal category, and tha plans witha eapacity of 200 MW of greater ae Targe” These dresholds are asumptions because there ae no official eatepoztions of ‘a eonstesinvermotite, hase, o aig pote plans Hoste, are changes the theshold values do ot change the conclsion Foretatple, the capt Fete Foot for shat consittes inlermeliatbaseload generat is inesased to SVE, the

Intermediateyhascloa percentage ot generation is 83%: the size thresholds inerease 9 0 MW, the intormaditebascload percentage of genciton is also 83% and if both ‘Snes are made the inermeatefbaeload percentage of pencation i 81%

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“The report also does not cover combined heat and power (CHP) pleats These ste typically industal plants that co-produce electricity ané steam for internal use and forsale Unlike plants that generate power exclusively ‘ef, CHP fociliies have unique plan-specifie operating modes co put elecricity on the and cost structures sndeconomics fundamentally different rom uty scale generation CHP generation is a small part ofthe cleric power industry, accounting for about 3.7% øf ttal lecwcity output in 2007." Hydropower is excluded because 20 significant construction of new, frge hydroelectric plans is expected (due to envizoumental ‘concerns and the small number af avaiable sites)

‘The eost analysis is for plants entering service om January 1, 2015, whieh means constuction would stan soon thetwcen 2009 and 2013 depending on the technology) The plants therefore incorporate only small projected changes from 2008 cost and performance for mature technologies, and reflect curtent estimates of {cos and performance for new or evolving technologies (such as advanced nuclear power and coal gisifieation)

“The technologies covered inthe report are deseribed briefly below Process iagrams and images of each technology are in Appendi A

‘Supercritical Pulverized Coal Pulverized coal plants account forthe great majority of existing and planned coal-fired generating capacity In this system coal is ground to fine power and injected with air into a boiler where i ignites ‘Combustion hea is absorbed by waer-carrying tubes embedded inthe boiler walls snd downstream of the boiler ‘The heat turs the water to steam, which is used to rotate 8 imbine and produce eleciely, Since about 2000 mast plans For new pulverized coal plant have been for “supereritical” designs that pain efficiency by ‘operating at very high steam temperatures and pressures

ln 2007, coal generation of all types” accounted for 49% of total power enerdion in the United States (see Figure 2)

tp 2007 total generation was 4,160 milion Mw Genertion from the fuse an ‘commercial sector aed 184 milion Mish, sme of which was frm non-CHD stra find commercial gencratrs EIA, Atmual Entergy Review 2007, Table 81

" Non American Elects Reliability Comp, 2008 Long-Term Reliability Assessment, Doar 2008, p 46

The primary altemative to pulverized coal technology for new coal plants isthe eieuluing fidal bai (CFB) hoilet CT isa eomanercial system usel manh; for Felatively small scale plans (about 250 MIW an es) that buen waste pooh (each a feitoleumcoke refinery eshte) 36 well soa, CFB iseurrently niche technolo a FS ot covered father inthis report For addtional information see Stove Blankinship “CFB: Teeliology af the Futue?,” Poier Engineering, Febsvary 008 (The sticks

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Figure 2 Total U.S Electric Power Generation by Energy Source, 2007 ¬ z 2 ‘SeotTotal Generation za 2 3

Integrated Gasification Combined Cyele (GCC) In this process eoal is converted ‘expensive to build than pulverized coal generation, bt proponents believe they have ta "synthesis gas” (syngas) before combustion IGCC plants are more

‘compensating advantages, including:

+ Lower emissions of air pollutant, such as sulfur dioxide (SO.), nitrogen oxides (NOx), and mercury However, modem pulverized ‘coal plants also have low emissions of air poltutans, 50 the advantage of IGCC plants over conventional technology is mite

+ Greater efficiency (ie a lower heat rat) although with curent technology IGCC has only a small effcieney advantage over conventional cal plans”

+ The syngas that results from the gasification process can be processed to convert the earbon inthe gas into aconcentrated stream

IA estimates a heat rue advantage of 4.7% for current technology With projected iimprovementsthe difference widens substantially to almost 5%, EIA,Assmyptions othe Annual Energy Outlook “cletity generating eiienciesdemonstatedto 2008, Table 38, Another study ils optimist finding date dono! ive upto eit projections that GC {lu othe many engineering ‘operability and cost The curent IGCC units have and next-generation JGCC units are design compromises thathave been mae o achieve acceptable

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‘of carbon dioxide (CO) The syngas can then be processed, before itis burmed, co emove the CÓ,

In principle this pre-combustion capture of CO can be accomplished more ‘easily and cheaply than post-combustion removal of CO rom the exhaust gases (flue gas") emitted by a conventional coal plant The promise of miore elicient ‘carbon eaptute is one of the primary rationales for IGCC technology

Coal-fired IGCC experionce inthe United States is limited to 8 handful of research and prototype plants, sone of which is designed for carbon capiuse A ‘commercial IGCC plant isbeing constructed by Duke Energy atts Edwardspor site indiana, and ther projects have been proposed However, some other poser plant developers will not build [GCC plants hecause of concems over cost and the reliability of the technology." In genera, the cost and operational advantages of IGCC over conventional coal technology and the commercial readiness of IGCC technology are disputed.”

Natural Gas Combined Cycle Combined eyele plants are builtaround one ‘oF more combustion turbines, essentially the same technology vsed in jet engines “The combustion trbine is fied by natural gos to route 4 turbine and produce leeticity The hot exhaust to produce steam, which drives another generator to produce more eleciiity By gases fom the combustion turbine are captured and used converting the waste heat from the combustion turbine into vselul electricity the combined eycle achieves very high efficiencies, wilh heat rates below 7.000 bis per Wh {compared around 9,000 bus per KWh for new pulverized coal pants), This high efficiency partly compensate fr te high cost of the natural gas used in these

plans

Modern conibine eye plans, which evolved in the 1990s, have a relatively low eonsituction cost and modest environmental impacts: ean be used to meet baseload, inienmediate, and peaking demand; can be built quickly: and are v ‘ftiient Beeauseo! these advantages, since 1995 natarl gascombined cyee plans

“For inte, LS Power a coal project developer deseibes IGCC technology as “experimental Steve Rae, "Clean Coa! Pat Setbacks Mount it US." The Denver Pont November 1, 2007

® For example, Appalachian Poster (APC a subsiding’ ofthe large uility American Electric Pancras posed Buiking an ICC plan o serve easton in Vissi ad West Virginia, The Virainia Stale Compantion Commission reject he proposal ting the technical immaturity and ancensin costs oF GCC tecligy The sane projet Was approved hy the West Virginia Public Service Corsmisson, hich conclude that “the Project is an efficent and capable proposal to net the baseload needs of APCO's ‘stoners and i the “hes option” availabe ta APCo._ (Virginia State Conporation ‘Commission, Application of Appalachian Post Co, Case Noy PUE:2007-0088, Fa Ore Apel M4 2008, pp 12-13: West Vicunia Public Service Commission Application for a Conifieste of Publis Convenience and Necessity, Case No, O6:003.ECN, ‘Comission Onde, Match 6, 2008, p25)

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have accounted for 88% of the all the new generating capacity built in the United States capable of baseload and intermediate service."

Natural 20s combined evele plants and other types of g35-ired powerplants are expected to continue to dominate capacity additions into the next decade.” Accerding te ELA, combined cyele plants will account for 29% of all capacity txldtions beoween 2008 and 2015." However this foreeast may understate weal ‘combined cycle plant additions, The EIA estimates that coal plants will aecount for almost a quarter of new capacity built through 2015, the equivalent of about 170 new ‘coal-fired generaing unis.” lis questionable sctally be built because of public opposition to new coal plants and the cost of the whether this much coal capacity wil Plants Liilites eporedly canceled 16,577 MW of planned generating eapaciy in 2007, of which 84% was coal-fired.” According 1 a Department of Energy (DOP) sp, only 12% (4500 MW) oF the coat capacity planned in 2002 10 be built by 2007 was aewally consiructed The report notes that “delays and cancellations have heen at ibufed lo reguÏilory uncertainty (regarding clinite change) or stained project economies due o escalating costs in the industy.”"

[ess coal capacity fs built than planned, the main replacement is likely to be combined eyle plants th typeof gas-fired unit capable of replacing plant For example, in 2007, power generators in Fovida planned 10 install 4627 baseload eval MW of new coal fired capacity through 2016 By 2008 the plas for new coal-fired ‘capacity had dropped 738 MW, primarily “due to environmental concems atthe

1 othe 2006 version ofthe ELAN ata ile of generating units, betwoon 1995

chive, 285,880 Toll, 165,800 MW used generating teemncogies suitable for baseload and MW of new gentatiny capacity ofl yes sere servi intermediate service, eclulng geohemal.eopbinsdeycle (aslcel,hạihoekctie tem Turbines using combustible fowl of renewable fuck, and wind fubines, OF this boseloal2ntereelatesepmen %, 19 ND was gaff comin cyclen, oF 88%, The neat largest shares Were wind power (6%) and cal (1%)

EIA, Annual Exerey Outlook 2008 68; Matthw Wald, “Usties Turn From Coal to Gas, Raising Risk Mocler lust Was 1 Make i Clear: Natural Gs “Fucl of Price erases” Te New York Times, Feary 5, 2008, "FERC's of Choice” in the Neat Fut Plans Elvi Uy Week, Oetober 22,2117; Alexander Duncan, Povwet Need, Cline ‘Cancers to Spark Bullish Natural Gus Market Experts.” Plate tide Bvergs, October N MỜI

* Calculate fromthe Annual Energy Outlook 2008 ouput spreadsheet, FLA projets tha all ga-irscombine cycle plan ps natural gas combustion iBin: pin pants ‘sll ccount For 4% of eapaciy akon tưough 2015,

Tid EIA pros the construction of 85,300 NAW of new coal 8 od capaci

Reber Siith, “Banks Hope to Espsnd Carbon Roles to Public Uses!” The Wall Street Journals March 20, 208

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State level The majority of this decrease in planned eoalfied generation was replaced with gas-fired units."

Natural gas combined eyele plants accounted for 17% of wial generation in 2007." and natural gas plans of all types accounted for 21% of total power _genevation inthe United States (Figure 2)

Nuclear Power Nuclear power plans use the heat produced by nuclear fission to produce steam The stem dives turbine to generate eleticity Nuclear Plants are characterized by high investment cass but low variable operating costs, Including low fuel expense Beeause ofthe low varie costs and design factors, nuclear plants in the United States operate exclusively as baseload plants and are typically the frst plans 19% ofthe nation’s electricity in 2007 (Figute 2) ina power system's dispach ores, Nuclear power supplies This report discusses projected costs for Generation IVHI+ technology nuclear plants, These plants are more advanced versions of the 104 reactors currently ‘operating inthe United States, an all reactors curently propased for constuction in the United Staves are Generation Ills designs, Compared existing reactors, the Gen IVIL plants are designed to reduce costs and enhance safely through, for ‘example, reduced complesity, standardized designs, and improved constuction techniques Some designs also incorporate passive saety systems that ae supposed lo be capatle of preventing &catastmphie accident even without operator ation

“There are several competing Gen HIIT+designs.* butonly one design has been built(Geneval Electric's Advanced Boiling Water Reset, of which four units have been consinuced in Japan) Plants based on other Gen IVIll+ designs are under ‘constrtion in France, Finland, and China Asdiscussed later in the repon, thecosts ‘of building a new muclear plan in the United States will apparently be very high

Geothermal Power Geothermal plants have operate for many yeas in the western United States, mainly in California, In a sypiel binary eyele geothermal facility, wells deaw hot water steam from underground into heat exchanger In te eat exehangera working Midis vaporized ane used to drive a turbine generator {ahe underground steam isnot used direedy because it contains corrosive impurities and can releaseair pollutants) I geothermal field that have been depleted by years ‘oF use, scl as the Geysets field in California, operators ean inject water ina the layers of hot rock ôâ supplement the naturally available water and boost steam production Unlike solarand wind poser, which are weather-dependent, geothermal plants operate as dispatchable baseload plants However, with current technology,

® Nont American Electric Reliability Comp 2008 Long-Term Refabibiy Assessment, ‘Octet 2008, p88

™ Accoing the FIA, 91620 data or 3007 gas iodeobinadeyclt ecounfedfor ‘milion mcgawast-hours of generation, outof a total of 41 ion megawatt hour Foranillustted summary of several of te Gen I ls designs, see “UK Naclese Power Tae Contenders.” BBC News January 1, 2008 fut.acws bee uk/Misehencel nate) 5165182 tm) Additional infration salable fom te Hinks at (pw ne ons!

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‘geothermal plants are tinted to smal facies typically under SO MW) the western United States." In 2007, geothermal plants produced 0.4% of the at sites in nation's power supply (Figure 2)2°

Wind Power Wind power plans (sometimes referred to a8 wind farms) use wind-driven turbines to generate electricity, An individual turbine typically has ø ‘capacity inthe range of 15 1 2.5 MW, and a wind plant installs ‘of these turbines As noted above, wind isa variable renewable resource because i dozens or hundreds availabilty depends onthe vagaies ofthe weather Wind supplied 1% of toal US power supply law and eegolation, this will increase to 2.49% by 2030.” in 2007 (Figure 2) FLA estimates that assuring no changes to current

Solar Thermal and Solar Photovoltaic (PV) Power Solr thermal and PY power are allemative means of hamessing sunlight w produce cletricity PV power uses solar cells to directly convert sunlight to eleeiei) To dat most of the Solar PV installations inthe United States have ben small about one MW or les9) Two exeeptionsarethe installations at Nellis Air Force Base in Nevada (14 MW) and the Alamosa Photovolisie Power Plant in Colorado (8 MW)

Solar thermal plans, also referred to as concentrated solar power (CSP, concentrate sunlight 0 heat a working liguid to produce steam that drives a power penerating turbine ‘Two major types of solar ermal systems are parabolic trough snd power tower technologies Parabolic trough plants use an array of minors 9 Focus sunlight on liguid-cartying ubes integrated with the mitts Several parabolic luough installations have operated suecesstully in California since the 19803, and the

(64 MW Nevada Solar One plant began operating in 2007

“The power tower technology uses a mirror Field wo focus sunlight on a central tower, were the hea is used (© produce steam for power generation, A research power tower, the Solar One/Two plant, operated for several years in the 1980s and 1990s in California 4 power tower plant has ecently ben constructed in Spain and 100 MW projet has been proposed for California,

Several new solar heen projets, primarily ofthe parabolic ough and elated types, are in development, The eapacity of these projects range up to 584 MW A potential advantage of solar thermal systems she ability to produce electricity when

2108, a reported 95 geothermal projects with publicly known generating capacities were in development i the United States, The tipper estimate of Ue 4 ‘apaciy of these projects was 3959.7 MW, oran average recs ane foe in western ates except fora single 1 MW projet im Ploids, Kara of 42 MW per penjoct All the Slack, 0: Geothermal Power Production und Development Update, Gctbirmal Energy Association, August 2008.8

For aiional information on gethennal power see Seve Blankinsip, "What Lies Beneath." Power Engineering, January 2007, available by” search Isppopet pent com’,

EIA, Aamo! Enorg: Outlook 2008, p 70 For mors detail on wind power see CRS: Rebor RL 31946, Wind Power ix the United States: Teclnlogs, Eeonomie td Policy Foss, by Tlf Logan aa Stan Kaplan

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sunlight s etk or unavailable by storing solae heat in the Form of molten sal, IP storage proves economical for large-scale plants then solar thermal facies in regions with song, near cominuous daytime sunlight such asthe Mojave desert, ould be operated 25 dispatchable plants with firm eapacity

|n.2007, solar thermal generation accounted for 0.01% of otal generation, and solar PV power for less (Figure 2)

Factors that Drive Power Plant Costs

‘This section ofthe report discusses the major laciors that determine the costs oF building and operating powerplants These factors inclu: + Government incentives, + Capital Cinvestment) ‘cost, including constuotion costs and financing + Fuel costs + Air emissions contols for eoal and natural as plants Government Incentives

Many government incentives influence the cost of generating electeiciy, Ia some cases the incentives have a diet and clear influence on the cost of bung oF ‘operating a power plant, such as the renewable investment cx credit, Other prograos have less direct affects tha are dffcul to measure, such as parts of the aX ‘code that infTuence the cos of preucing fossil fuel.”*

“The economie analysis in dis report incorporates the Following incentives that sliretly affect the cos of buikling or operating power plans.”

Renewable Energy Production Tax Credit." Thecreit has 2008 value ‘of 20 ceats per kWh, withthe value indexed to inflaton, ‘The exedt applies tothe For a comprehensive list of energy market incomives, see FIA, Federal Finacial Inervenions ad Subsidies in Energy Markets 2007 Api 2008

The analysis des ot include the ere fo eatbon doxidesequestetion established by PL.110-348 Division B, Tiel, Subse B, Section 115 adding ane $450 0 26USC.) ‘Ton provides fort vaio $20 perme ono CO, sequestered ton for CO, capeured and used for enhance recovery, The eres ineect though the and $10 per metic

Joan whic the cumulative volume of CO captors oa 75 millon metic ans This {ret isexelado becuse is very dificult prediet how Fong she ene wil bein effoe The EIA analysis of the Licherman-Wartee Climate Secunty Act of 2019 (3 2191) estates, for the eases tha pect carbon cape, eumaltive CO, eaptute of sb $9 tllon o 10 ion tons by 2014 whi spt fo the on-line data of 5 assed for re powerplants inthis sl AFF the spreaisoets which eosain the dtd S, 2191 ‘ups see the LIA wc bp ww is de gpviissonieerpUk2I91fmmlex ham)

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Tin I0 yệs 4 lanl's operadion, As of October 2008 the eredit is available 49 plans that enter service before the end of 2009, The credit is currently available to new wind, geothermal, and several other renewable eneray sources New solar ‘energy projects do not qualifs, and geothermal projects can take the production creditonly ithey do not use the renewable investment tax ered (discussed below}

Nuclear energy production tax credit." The credit, which is for new advanced nuclear plans, has a pominal value of 1.8 cents per kWh, The credit spplies to ihe first eight years of plant operation alike the renewable production tax eret the nuclear credit isnot indexed co inflation ana therefore drops i real value overtime This ered is subject to several limitations:

+ Iris available to advanced (ie Gen IVT) naclear plants that sgn construction before Janay 1, 2014, and enter servi belore January 1.2021

+ For each project dhe annual ere is limited r9 $125 million per thousand megawatts of generating capacity + The fll amouatof de eed wil be available to qualifying facilites ‘nly if the toial capacity of the qualifying facilities is 6.000 megawatts or less Il the total qualifying eapscty exceeds 6.000 rmegaviatts the amount of the eredit available to each plant will be prorated, ELA estimates in ts 2008 Anmual Energy Outlook that 5,000 megawatts of new nuclear capacity will qualify" inthis case the credit amount would drop to 35 cents per kWh once all the jualifying planes are on-line This pro-rated value is used in the report's economic analysis of generating casts

Loan Guarantees for Nuclear and Other Carbon-Control Technologies.” Under final Department of Energy (DOB} rules the loạn _Buarantces can cover up © 80% of the east of project, and are awarded based on 3 ‘dealed evaluation of each applicant project Entities receiving loan guarantees must tmake a “credit subsidy cost” payment to the federal treasuy that reflects the anticipated cost of the guarantee othe government, including s probability weighted ‘costof default Because the debt is backed by the federal government, it is expected

36USC MS,

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to carry the highest eredit rating and therefore 8 lo inetest le." The guandnlees sre unavailable to publicly owned uilites, such as municipal systems

Congress periicallydetervines the total value ofthe uarantses that the DOE, 's authorized to gran In Apsl 2008 the Department of Energy announced plans io solicitup 1 $18.5 lion in aan guarantee applications for nuclear projects." Aso [November 2008, DOE was considering several applications for loan guarantees

Developers and investors have stated thatthe loan guarantees are critical to ‘constructing a least the fist wave of new nuclear plants This is because of the "uhi-biliondolla costofa nuclear project, whieh can exceed the total market value ‘of the company building a plans For example, in 2008 the president of Exelon Generation, which operates large feet of existing nuclear plants and plans to ui hv units, stated that constructing new nuclear pants would be “impossible” without Ton guarantees.”

Energy Investment Tax Credit.” Tax credits under this program are availabe solar and geothermal electricity generation, and some other innovative ‘energy technologies Wind energy systems do not quality The ere is 10% for ‘geothermal systems, and is 30% for solar electric syste installed before January L, “nthe assump tha the pscanied de wou hae a high (AAA) tating see “Loan Guarantees for Pooects that Eiploy Innovative Technolgies.” 10 CFR IB0I-ABðI),Oaobsr4 3M, m 2t § 609 (RIN Bates receiving loan guarantees must make a substantial equity comtition tothe project's financing Pubic powsrentiesommallyda nt avethoretsnedearines needed Temake seh payments The le sa Dfeelude rung loan guarantee ithe Federal furanise would cause what would otbenwne be tox exempt dt to hocome sect to income tases Une eure ti hs sitstion woul tse te feel goverment were te guarantee puble powcr debt For further infonnationon thse ant odie septs of the loan etsrace program sce U.S, DOE, Final rule, "Loan Guarantees for Projects dat Enploy Innovative Technologies." 10 CFR § 609 (RIN 1901-AB21}, Oxtober 4, 2007 [nips mera ners eot/keydueshinl|

DOE Amounces Pls for Puure Loan Guarantee Solctaions, Deparment of Epeney pres release Apsil 11, 2008 According to press reposts the Japanese and French [Eoverments oy alo offer lon guaritacs to Ameiean adceae projets Free md Tapanese companies are expected tn be major suppliers to new US nyelear projets The tems ofthe loan guarantees, assuming they comet tion, ate unknown, Elaine Hino, "apanese Gavcniment Considers Loan Guaruntss for US Reactors Pte Nuclevnice Weot, Aogust £4, 2008, and Elune Him, “Japan Clears Way for Loan Guarantees it US, Plans Nucteonies Week Sepemive 2, 2008

Steven Dolley, “Nuclear ostce Key to Exchon's Low:Cathon Plan” Mls Nucevnies Week (February L4, 2008) For similar onments se “House Appropiaons Seek DOE Loan Ciuarantoes Delay Pending Dr Joe ©: Tunage, Unitar Nicest, presentation to the California Energy Coninisson GAO Review,” Energy Washing com, June 1, 298%

‘New Nuclear Devslopnen: Parole Path Town a Lover arbom Ener Fat une 28,2007 and Selina Willian, “US Government Loan Guarantees To New Nuclear Too Swall NRC.” CNNMoney.com, Marc 10, 2008,

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2017 (after whieh it everts to 10%) Geothermal projees that ake the investment tax eredit eannot claim the renewable production tax credit." The depreciable tosis ‘ofthe projet lor tax purposes is reduced by 50% of the ereitvalue The investment tas credits available to independent power prelucers and investor owned uses but is inapplicable to tax-exempt publicly owned utilities.”

Clean Coal Technologies Investment Tax Credit.” This 1x credit can be used byinvestor owned ullitiesor independent power producers (itis inapplicable to tavexempt publicly owned utes) 1s limited toa total of $2.53 billion in ax credits, of which (1) $08 billion is specifically for (GCC plants; 2) $0.5 billion is fornon-IGCC advanced coal technologies and (3) $1.25 ilion isfor advanced coal projects generally The 18x eredits inthe third category will nat be awarded until siler de program thatencompasses the ist twocategoriesal tax credits iscompleted ‘or until suc other date designated by the Secretary of Enemy." The depreciable

basis of project for ax purposes is redueed by 50% ofthe credit value

State and Local Incentives State and local governments ean offer suditonal incentives, such as property ax delerals ‘The combined value of the jeovermnent fax breaks can ru into the hundeeds of millions of dollars per project For example, Duke Energy's Eawarésport IGCC projet in Indiana is expected to receive almost hl-a-billion dollars in federal, state, ad local tax incentives

State tility commissions ean use rate weatment of new plans asa financial incentive forthe invesior owned uilies {wilt is nav permed fo earn a rue on is constuction investment uni they egolate Under waditional rate making a plat isinservice, his approach io rstemaking is used 10 motivate the wy to prudent rmanage construction, an to ensure lit customers do not have to pay for & power plant until itis operating However if project is very expensive, the time lag Therween when casts are ineured and when return on the investment is allowed in rates ean puta financial stain on the company Itthe plant return into cates asa single big adjustment ean inflict "rate shock” on customers is expensive adding the

® Foe ational information se the discussion of the investment ta cri in de foetal inceves section ofthe Daishase of Sate Tacoives for Renewable Energy wehote IRtprlswv.direostorgl]

"Investor owed utilities ilo qualify fo this creat ul she passage of PAL 110343, in Oster 2008 See PL 10-343, Disision B, Title L, Subtle A, Sections 1K) and 1H00) 826 USC.948A, asamendodhy PL, 110-343, Division Title, Subsite B Section 11)

Te ]OCC cre is 206% eapped a $1.33 millon porpoise, with regunement thatthe nats be alloca to proecs in each of three categories; Biumioous coal-finel, Sulbituminous calf and lignitefired plants Other advanced coal technologies can ‘quality fora 13% eet Aat rte of § 530 bruskWh o ess and ear oro oh CO emission or 2) am eis with capo S125 hillon por projec i 1a new uit ean achieve

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For these retsons, utilities sometimes argue for an altemative rate making method called “constuction work in progress (CWIP) in ates.” In this approach, utility isallowed co recover in rates the return on its investment a the plant is being built CWIP in estes relieves the uit of the financial stain of carrying an ‘expensive investment that is yielding n0 income phases-in the rate inerease (© customers, and decreases the wiliys nares! exposure ifthe project isdlayed, On ihe other hand, the pressures for prudent construction management inerent in trstionalratemaking are dampened

Somie slates, such as South Carolina and Mississippi, have passed legislation allowing ublity projets that meet certain criteria to receive CWIP in ates." Inotber ‘eases utilities have received CWIP in rates under existing rules CWIP ‘expanded beyond its histori application very expensive coal and nuclear projects in rates has For example, she Kansas and Wisconsin commissions have allowed CWIP in rates for relatively small wind projects."

Capital and Financing Costs

Construction Cost Components and Trends Most of the senerating technologies discussed in this epor ate capital intensive: that, they rouire a large initial constuction investment relative wo the amount of generating capacity built Powerplant capital costs are often discussed in terms of dollars per kilowatt (kW) ‘of generating capzcity All of the technologies considered in ths report have «estimated 2008 costs of $2,100 per kW or greater with the exception of the natural ‘gas combined eyle plant $1,200 see Appendix B) Nucieat, geothermal, and IGCC plants have estimated costs in excess of $3,090 per kW

Power plant capital costs have several components Published information on plant costs aften do not clearly distinguish which components are included in an estimate, or different analysts may use different definitions The capital cost ‘components are:

+ Engincering, Procurement, and Consteution ‘cost ofthe primary conteaet for building the plank It neludes the (EPC) cost: this isthe

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facility, buying dhe equipment and materials and construction." + Owner's costs: these are any constuction costs that the owner handles outside the EPC contac, This could include atanging for

the construction of transmission and fuel delivery facilites (such as 1 natural pas pipeline) 2 power plant, + Capitalized financing charges: a plant developer incurs financing ‘charges while a powerplant is being built, This clades interest debt and an imputed cost of equity capital “Until the plant is ‘operating these costs are capitalized: that is, become part of the investment cost of the project for ax, regulatory, ana financial snalysi purposes (see futher discussion of financing ents, below)

Construction costs foe power plants have escalated at an extruordinaryratesince the beginning ofthis decade According plant increased by 131% between 2000 and 2008 (or by 82% if nuclear plans are 0 one analysis the costof building apower excluded from the estimate) Costs reportedly increased by 69% just since 2005 ‘The cost increases affected al types of generation For example, between 2000 and 2008, the cost of wind capacity reportedly increased by 108%, coal increased by

78%, and gas-fired plans by 92%." The cos increases have been auibuted to many factors, including

+ High prices for raw and semi-finished materials, such as iron ore, steel, and cement + Sirong worldwide demand for generating equipment China, for example, is reportedly building an average of about one coallied

enerating ation a week Low value of the dolar

+ Rising construction fabor costs, and a shortage of skilled and ‘experienced engineering stall”

“Typical practice i forthe project developer to cater into single EPC eomract with 2 langeconsrucionandengineering firm The firms esposbl or mest planteonstrcton activities and absorbs signiicat cos, day and technical risk, wich is tefleted i the ‘onttact pre A developer ean set as ifs own EPC manager a avoid paying the isk rs opt ont in in ase he dsb bt pee ah Peformance isk,

“Keith Beadsher snd David Batbore, “Pollation Foon Chine Shadow" Tie New Fork Ties, Tune, 26

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n lrophied domestic and imernatosal industial and speeialized Tabor base for nuclear plant constuction and components

+ Inthe c2se of wind, competition forthe best plant sites and a tight ‘market for wind turbines: nthe case oF nucle pants, linited global ‘capacity to produce large and ultra-large forgings tor reactor pressure vessels” + Coincident worldwide demand for similar resources from other business sectors including general construction andthe construction ‘of process plants such 3s refineries Much of the demand is driven by the rapidly growing economies of Asia.”

“The future wend Ín construetion casts is a evtial question for the power industry ‘Continued increases in capital costs would favor building natural gas plans, which have lower eapital coxs than most allesatives Stable or declining constuction costs would improve the economics of capital intensive generating technologies, suchas mclear powerand wind.” Atleast some long-term moderation in cost escalation is likely, as demand growth slackens and new supply eapscity is audded.®” But wheo and io what degree cost increases will moderate is as unpredictable as the eeent cost escalation was unforeseen,

Financing Power Plant Projects Eves relatively small power planiscost nitions of dollars For example, the capital cost for a50 MW wind plant would be bout S105 million at $2.100 per KW of capacity The investment cost is rypically

(continued)

Beaom Creates Labor Shortage," The Chore (Nonh Carolina) Orv, September 5, 208

© Yuliya Chernov, "Change inthe Ait” The Wall Siret Journal, Feary 11, 2008 Bet Caldwell, “BPA's wind power tops, 1000 megawats.” The (Spokane, Washing) potesman Reviews JanMuy 12, 2008 Yoshifumi Takemoto and” Alan Katz Samurai Sword Makers Reactor Monopoly May Cool Nuclear Revival Bloomber com, ‘March 13,2008 © Marthe L Wald, "Code Suy For Building Power Plats,” The New York Ties; Il 10, 2007,

“Wind powers es costly to bald han, for example, oal oe miclear plas, However, scans wind plants are wher depenen tnd plants have mac lor capi tacos Than ena or neler plans Atypical wind plant eapacty Factor is about 34%, compared 10 70% to over 00% forcoal and Mea plants This means the capital eos ofa wit psn arespread ever eatively few megawathoursof generation, incre the cost per unto ‘lecticity sod Inthe ease of variable renewable menurve like wil and star power, anything ha edaces capital costsor increases ization can significantly ines pl © For example vendors AsiaandEoropeare lansing wail new cgpacity to maneture sey lire Tonnes, parinlarly important for nvetea pls, Mark Fibs, “Chinese Equipment Fabricators Set Antious Capacity Tarts." Plats Nuceonies Weok May 2108 Peal Marshall," UK's Shere Forsemssters Plasto Peee Ulir-ange Fores Plas Nuceonies Week, ApH, 2008

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Tinaneelb combination of debt and equity * The financing structure and the cost ‘of money depend on the ype of developer and project-specific risk,

‘Three types of enttes typically develop power plans:

+ Investor-owned utilities (IOUs): 1OUs are owned by private investors and are subject government regulation of rates and ‘conditions af service They have guaraned service teritories and face limited competition State uty commissions designed to maintain the financial health of the utility, assuming i set electric rates ‘operates prudently The eormmission aso must approve proposals, by the utility to build new pawer plants,

+ Publicty-owned utilities (POUs): A POU is silty that is an agency ofa municipality, astate.or the federal government Electric ‘cooperatives are also considered to be POUS, Like JOUS, POUS have guaranteed service territories and face limited competition Most POUs are smal, provide only distribution service, and have Timited fnsneial and management resources.” But larger smaller POUs also ows and operate power plans, sometimes as co- and some ‘owners of projects where an [OU ot independent power produces the lead developer Examples of POUs with large amouns of generation include the Tennessee Valley Authority and the tmunieipal gHldiee serving the cities of Los Angeles and Sam ‘Antonio, POUs set their ow rates and make their own decisions to build power plants,

+ Independent Power Producers (IPPs): IPPs are merehant developers and operators of power plans that sell wholesale power to utility and industrial buyers, Within limits they can sel power at ‘whatever price the marke will ea.” IPPs Face more financial sk

% Equity capital includes the funds provided by the owners of the finn Fis the stockholees) Debt ishorowed money ‘The owners of a project sce to repay det and to bl recover ir eghity investment an ear a ern on ta inves,

Phir w dherestucturing of the eletri power industey that hogan the 1950s TOUS were typically vertically integrated providing generation, transmission, stl dsebuton livery af electeiy To comin) ia sate sapeioned monopoly service ae With nal resiructring, some stats reguied or encouraged ules io divest thei power plans In tray parts ofthe eoantry cont (ough not owners of kansas assess oe the ands of edcrally sponsored

that required 1OUs to divest generation are ove allowing iis To ance again wn ak ‘operate powerplants, such a8 Caloris,

* In 206, ut of 2,010 sovernme-ownc letie wis, oly 08 had total revenues in «ess oF $100 pain dla Ty coms the fel cos frase arg powerplant ea ‘excoed $100 milion per year American Pahlic Power Associaton, 2008-09 Amu Direcwor on Surneiral Report, p 30 at des no ile eh cooperative,

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than regulated tities — they do aot have guaranteed service teritores and ean face intense competition for power sales — but ‘can also eam larger profits IPPs make their own decisions to build power plants

All three types of entities playa major ole in the electric power industry (Table 1), ‘The lines berween the entities can blur Holding companies that ows FOUs ean also own IPPs, POUs sometimes ow lige shares of power projects developed by TOU or IPPs Table 1 Shares of Total National Electric Generation and Generating Capacity, 2006

Generation Generating Capacity

Publicly Owned Uses 22% 215%

ma 4i 388

Non Du 1% 4i

Nasional Toil 98 100

Srare: Arca Pai Power Asasato hapten appantgileDEiep 206 pe ‘ting Eoeey tortion Adnan,

Notes Nonny genrton inchs indpenden powerprcuercandpowermurkete Nomi

The cost of the money used to finance power projects varies significantly between IOU, POUs, and IPPs, A POU will normally tinanee a project with 100% debt ata low interest rate, The rate i low because imerest paid on public deb is ‘exempt from federal or state income taxes," and ecause public emities have avery low risk of default (failure to make debt payments, much lower than for private

{.comtinae)

Prices, such t $1000 por Mist toprevent xtraontiaay cess These cans apy Thspot sles of elecnsiy, not biker contacts

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businesses.” ‘Typical municipal bonds have ratings in the middle or upper tiers of investment grace debe"

Privately owned 1OUs and IPPs fiance power projects wih a mix of debt and ‘equity Debts more costly 10 these companies than to POUs because itis nol tax ‘exeinpt and because they sual have lower credit ratings ‘The electric willy industry a6 a whole has a credit rating in the lower Ger Of the investment grade category (BBB)." IPP det often falls in the speculative eategory and has a higher lens re than LOU or POU issues.” Investors expect private developers to make a significant equity contibution to Aapmject Reliance on equity versus debt varies by conipany and project The cost analysis usd inthis study assures that IPPs and 1OUsrelyon, respectively, 40% and 50% equity (see Table 17 in Appendix D), except in Use case Where federal loan uaranes are avaiable (see discussion of government incentives, above) Eguily * Moody's Investors Service Stapping of Moody's US Municipal Bond Rating Seale vo Moois's Conparate Rating Scale ant Assignment of Corporate Ejpilalwt Rates to Municipal OMgations, one 2006, p.2 According toMocdys between (97D 200,00 ‘of 60 rated sunicipal bond ises Tor electric power, only to defaued Gncladig the ‘Washinton Public Poser Supply System default a large ruclearconstctionp

Overthe same period, about 70% of municipal bons were aed & or higher, ales han 2 werente below investment grade Moody's Investors Service, Moods US Mantepal Boned Rating Seale, November 22.09.55,

Moody's Investors Service, Moody's US Municipal Bond Rating Sale, Nowewshor 2002, 1, Raingageces si debt tocretitwomtiness categories, Investment rade debt hae Stating of BBB or higher in she omenclaare used by Stand & Poo ahd Eich, The {silent category for Mondy’s is Bas3 and higher Lover rtd dsb is fered 0 38 Specative oe high ye ses, ores pleas as "junk bods.” For deseriptions ofthe fatings systems and crosswals ce Edison Elec Instate 2007 Finacial Review, p86 ‘dnp cota: buyeesinvesers Mn Note ta theme bo marke was roiled by the 2008 financial eis (Tom Herman, Muni Velde Rise wo Rare Leek” The Wall SirectJounval, November 8, 2008)

pp Stant 87

Most PP dete is reportedly ste elow investment grade (clephone comersaion with Scott Solomon, Mod's Invests Serves, Febmary L3, 2008), Forimvanee.in ung 2008 the debt ratings for several lage IPP developers wer al spective pre: NRG Standard { Poors ating), AES (D4 to BB), Edison Mission Energy (BB), and Dyaesy (B+) (Souroe: Sandand A Poors NetAdvantage on-line dats system) IPP power pans may he Proeet-financed tat is, de financing and the recourse ofthe debt holders is tied to a Specific projet, ott the corporations awbole, For example, the LS Power Sandy Crock, [AES lromwond, an Calpine's Riverside and Rocky Moun pres all have pret Specie speculative gra debt ang, (Soures: Moody's Ineesor Serve pres lees ‘August 3.2006, August 14,2007, and Febrary 8, 2008)

Over-celiance om deb i considera risky for private enftes and leads invest to mand higher inerest rites AL some evel of debt Finance, POU ean ey on 100% de inaneine because hey sont tel ss rates ad 2 prjeet would Be impossible to

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| more expensive than deb and is more expensive for IPPs than [OU because IPPs typically face more competition and financial ish

In summary

+ Because they ean build poster plants more cheaply than IOUs or IPPs POUS can finances power project with 100% low-cost debt However because of the small size of most POU they do not have the Financial or management reseurces to tke on Farge and complex projects by themselves, s0 POU often parier on projects where a

TOU or IPP isthe lead developer

+ 10's ypicaly have lower financing costs than IPP's because they have lower eoss of debs and equity” + Financing costs are highest for IPPs, which makes them somewhat less prone (@ take on the highest eost projects (such as eval and

‘nuclear plants) unless POU or 1OUs ae co-owners, Fuel Costs

Fuel costs are important the economies of coal, nuclear, sad natural gas plants, and irelevant (© solar, geothermal, and wind power Recent ends in the Aelivezed costof coal und vatural paso powerplants ae illustrated below in Figure 13 The constant dollar prices of both fuels have inereased since the beginning oF the ‘decade, but the price esealaion has een especially severe for natural gas." Natural

© Equity is more expensive than de jn pat heesuse nett payers on debe ate ax deductibi while te imped cos nf equity snot an expense for incom tx paps ‘er eonsidration fs that in the event of bankpiey bondholders ae paid before hanhoikec` An equity investment is cherefore shir dan hokling debt and iavestors ema higher compensation (Unlike a om which has a know inerest rae, Dee 8 99 Sircly measurable wost of equity ts cost essentially te tua investors wll expect of Tei uit sake in he fim Varios techniques are tre to estimate the eos of ei The concepts are disevssed instant fianee tex xanple Sa No an Richard Brealey, Principles of Carporate Finance, 5, Chapter.)

°* Financing srangements ean be fue moe comple tan desetibed in his bref overview As anillustration, see she discussions of wind power financing in Ryan Wiser and Mask Bolinger Annual Reporton U.S Wind Power tniletion, Cot al Perforce Trend 2807 US DOE May 2008, p Hand John P Harper Mathew D, Karcher and Mark Bolinger, hind Prnec Finncing Sieurres:A Review & Comparative Anasss, Lanes Berkeley Laboratory September 2007- Foradeserpion ofthe Bnancing arangements oF an IPPsdevelops coal plan, se the deemsion of the Phy Point projet in = Neth ‘Ametcan Single Asset Power Deal of the Vear 2006 Project Finance, Februty 2007,

© Coal at gs prices hav increased duc to national ad alobal demund growth init «execs prodcton ealacty,ceroin na] cireuatdanevs (sich as loli that raldeed ‘Aust coal prodution apd exports, iereases in eal bars sal ocean Boins vss! Fates for delivering eal to consumers, andthe -upin world ol pices, Fara dscassion ‘fenzniy price trends see EA's Annual Energy Ouloo for longterm projections pd the ‘eonsinued )

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‘sas hasalso been consistently more expensive than coal, The comparatively low cost ‘of eos! partly compensates forthe high cost of building eoal plants, while the high ‘cost of natural gas negates part of the capital cast and efficeney advantages of ‘combined eyele technology

Because it takes yeas to build a powerplant, and plants are designed 0 operate for decades, generation plans largely pivot on fuel price forecasts However, fuel prices have been notoriously dificult predict For example, EIA forecasts of selixered coal prices and natural gas wellhead prices have been off target by an average of, respectively, 47% and 64%.” EIA aubutes the gap between actual and

forecasted pas prices to host of factors

AAs regulatory refi dhat inewessed the role of oimptitive markets were Fnmplementod ithe, mid-19SDs, the behavior of tral gas was especially sitfeul to pedi The leehnolosesl improvement expectations embeded it turly AEDs [Antal Energy Oxtloks] proved conservative and vances that ‘ade petroleum ntl es lesseosly tape wens mised Aer nara 298 cunaliments that artificially constrained natural gas use wer eased in the ‘nl [9Ms retra as sane trative el source paca TOF levity generation and industrial uses, Historically, natural g2price Instability was strongly infleonced by natural gts resoures estimate, which Steir, ad hy he Ma il priee Mire recently, the AEO etotence ease bhasoveretimsted natural gesconsuipion dco the seo ntial gas wehead price projecdons that proved to be sigifeaily fower shan what seually ou.”

LA's analysis illustrates how the confluence of technological, regulatory, resouroe, and domestic snd iemational market Factors make fuel forecasts $0 problematic Fuel price uncertainty is especially important in evaluating the ‘economies of natural gas-fired combined eyele plants Forthe base assumplionsused inthis study, fuel constitutes half of the (tal cost of power from a new combined

‘yee plat, compared 1 18% for a coal plant and 6% for a nuclear plan

( cominued

Short-Term Energy Onlokfornearterm forecast [htpitwww.cia doe govloadonceasting ‘tal © BIA, Ania Energy Outlo Retrospective Reviews, April 2007 pS

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Figure 3 Coal and Natural Gas Constant Dollar Price Trends Delivered Price of Coal and Natural Gas to Power Panis, 1990 to 2007, Constart 20088 — = bens nang pe MHEm 89£t6096% [Cosi — Nate ae

‘The price ofthe uranium used to make nuclear fet has ike coal and natural as, ineeased sharply and has been volatile (Figure 4) Although prices have recently dropped, they are sil far above historic levels.” Over the long term, EIA ‘expects nuclear fuel prices to increase in real terms rom $0.58 per mumbtu in 2007 to $0.77 per mmbtu in 2023, and then slowly decline.” Even prices twice as high ‘would not have a major impact on nuclear plant economics, which are dominated by

the capital cost of building the plat

© Factors that cause prices to rise include increased demand, problems bringing new rani mines into serves, and the depletion of commercial inventories of uranium The recent doelne in prices may he dv in pare oan improved shor-erm production outlook: see “ERI Expects Base Price t Drop, Then Rise Again” Plats Nuclear Fuel, une 16, 2008 Teas years before a change in uranium prices is reflected in reactor Tus oad “The lagi caused by the time it takes to process the uranium and manufacture fel ros: mol-year contrat that donot reflect curren prices; and reactor fueling schedules (refueling take place on Lor 24 month cycles, and at each reucling only about third of Thecoreis replaced This lg ean cutboth ways uranium ries dine, a plant may sil have roads based on expensive uranium i he pipeline

Fr the EIA nuclear fel price forecast used i the Annual Energy Outlook 2008, go 0 [hup:iww.ciasdoe govliatacoeletieity hl andelick on “igure data or Fight 70

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Figure 4 Uranium Price Trends LPPEP LISP EER LILES PDS Air Emi

ns Controls for Coal and Gas Plants

Regulations that imitairemissions from cos and natural gs plans can impose two types of east; The cost of installing and operating control equipment, and the «ost of allowances" that permit plants to ent pollutants, The following emissions are discussed below:

Emissions from coal:

+ Sulfur dioxide (SO,), precursor to acid rain and the formation in the atmosphere of secondary particulates” that ae nbealthy to breathe and can impair visibility

‘+ Mercury, toxic heavy metal

‘Primary particulates (soot) entrained in the power plant’ fue ¬

> Under te existing federal SO, and NOx eegulatory programs, most existing plants have hen allocated allowances sulicient to cover their eminsons, These exsing pants do not eed ohuy emissions, and may have surplus emissions to sll, especially ithe plans have retrofited polation coal equipment

Coal plants ean produce two types of panicultes Primary particulates, sometimes refered a soot reformed inthe combustion process Secondary particulates form in the atmosphere though th condensation of nates and sles Patcultes are ‘objectionable Robert Crynack and Ross Bsr, “Thị because of visibility

30, 2008

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Emissions from coal ana natural gas ‘Nitrogen oxides (NOx) a precursor to ground Fevel ozone, acid ain, and the formation in the slmasphere of secondary particulates

‘+ Carbon dioxide (CO), a greenhouse gos produced by the combustion of fossil fuels

‘The regulations and control technotogies for SO., NOx, partievlates, and mreury are discussed briefly under theeategory of "conventional emissions.” These pollatans are subject wo ether existing regulations or regullions being developed lunder current law, and ean be conttolled with well-understood, commercally- svailale technologies CO, is discussed in more detail because eontrl technologies are tll under developraent and may emissions.” While CO, is not eurteatly subject to federal regulation, contol he far more costly than conttolsforconventional legislation is being actively considered by the Congress and some states are taking section fo limit CO, emissions

More information on air emissions, partiulariy on regulstory and potiey issues, is available in numerous CRS reports, ‘The reports can be accessed through the “Energy Environment, and Resources” link on the CRS website hlprfwew.ersgov]

Conventional Emissions The Emiroamenlal Proection Ageney (PA) hac established Navonal Ambient Air Quality Standards (NAAQS) for several pollutants including $O,, NOx, ozone, and particulates New coal and nstural gas Plants built in areas in compliance with © NAAQS standard must instal Best Available Control Technology (BACT) pollution control equipment that will keep ‘missions sufficiently low thal the area wil stay in compliance, Plants bit insteas natin compliance with a NAAQS (referred 10 38 “non-atanvent” areas) must meet 2 tighter Lowest Achievable Emission Rate (LAER) standard In petotice, air permit emissions are negotiated case-by-case between the developer and state sir authorities Feral standards se a ceilings stave permitscan specify lower emission limits,

In addition to technology control costs, new plants that emit SO: must buy SO; ‘emission allowances under te aed vain contol progr established by Tile LV of

> Renewable powerplants that do not burn fuss, such as sola, wind, and generat poser, dot ave airemissons The depleted fae rds fom aca plants contain high Fevel radioactive waxes The nuclear fbe cost wed inthis study nee the Federal one mill Gs, one tem of «cent per kWh fe for supporting eration of = permet waste repository Inde nevi depleted il estore at each reactor site Far more invonnaton See CRS Report RL3M61, Cian Nuclear Waste Disposal by Mark Hot

* BACT requirements take into account enstefTetivenesst LAER requtes the lowest, possible cision rate without cost considerations For an overview af the regulatory Framowotk see MIT, The Future of Cant, 2007, pp 138-136, The federal New Souree Performance Stands for net age fossil ited pts a found at 40 CR, $6IKDS}

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the Clean Air Act Depending onthe location of anew plant, it may also need 0 purchase NOx allowances.”

‘Regulation of metcury i unsettled On February 8, 2008, the U.S Court of Appeals for the D.C Cieuit vacated the Bush administrason’s Clean Aie Metewry Rule, which would have allowed new coal plants to comply with mercury emission liots by purchasing mercury allowances Because of the cout’ ation, coal plant mercury emissions are now categorized asa hazardous air pollutant, If die decision stands,” i will rigger requirerient forall coat plants, old and new, tø install ‘mereuty contol equipmeat that meets 4 Maximum Available Control Technology (MACT standard EPA has not yet defined a MACT standard for mercury, but state siroffcials will probably require new plants meet ight mercury emission lms

‘The technology and cost for eontolling sulfur, NOx, particulate, and mercury emissions are briefly described below For additions information on emission contol technologies see the Intemational Energy Agency Clean Coal Center at Llutpsv ea-coal orsiteieacoalatabasesielean-coal technologies)

+ Sulfur, Commercial technologies can remove 95% to 99% of the 30, formed by burning coal in pulverized coal plans, and over 995% ‘of the sulfur in IGCC synthesis eas befowe itis bummed To the ‘degree that a new pulverized coal unit or IGCC plan releases SO, to the atmospltere, it must huy SO, emission allowances Because SO, emissions by plants with eotols are so stall allowances are nota major expense compared (othe other costs of running a power plant At mid-2008 allowance and fuel prices, the annual cos of $0, allowances fr a coal plant burning eastern coal would be on the ‘order of $1 million, compared to over $220 million just for Fuel.”

° A allowance is authorization to emit one nit ofa pollutant doing a specified time Petia, usually a eat, For example, nde the aid rit esp) ad eae program, national total SO emissions are eapped ant each coal plan ust submit sulfeientallakaee tà ‘over iisannial emissions Oder pants can comply by saying withientssin allocations, insulting contol equipment andorbayingSO, allowances New planisnust install conta ‘euipient nd by alles,

NOx regulation is comptes an involves Bosh federal and state ules Fora summary of NOx regulation se the Nasional Energy Techwology Laboratory website at Thup,row ntl doe gov/tochnolievcoulpowerfewi/naslees Ni

The decision has been apps by the EPA wo the US,

‘Supreme Cour

" RSDIBI7, The D.C Ceewit Rejrts EPA's Mercury Rules: Nev Jerser EPA, by Rober Meliz na James E McCarthy: Arseaa Said, "Uiliies with Permits o Bula News Units ‘Caught ia MACT Repilatory Bin,” Plats Coal Outlook ne 28,2008,

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The cost of the control equipment is mote significant An SO, ‘contol system will aecount for about 12% of the capital cost af 3 new pulverized coal plant and 29% of non-fuel operating costs (Table 2) (Is difficult isolate envieonoxental control costs for sen IGCC plant hecause etnissions como is largely integral with cleanup of the synthesis gas that is necessary, respective of environmental rues, prior combustion.)

+ Mercury Some pulverized coal planscan achieve 90% removal of mercury a5 a co-benelit of operating SO and particulate conirol ‘sjuipment Outer plants will have to instal a powdered activated ‘carbon injection system (accounting for about 1% of the plant's «capital remove 90% to 958 of the mercury from the syathesis gs using cost and 9% of won-fuel operating costs) [GCC plants would nother technology also based on activated carbon,

+ NOx Commercial technologies can reduce NOx emissions to very low levels for pulverized coal and IGCC plants Depeneling om & plants locaton, itmay haveto purchase NOx emission allowances ‘Asin the ease of SO, allowances, because the controled emission rates for new plants are so low the total cost of allowances is small ‘compared to other plant operating casts The cost of the contol equipment fora pulverized cos! plan is about 2% of capital expense

and 9% of ron-fuel operating costs

+ Particulates Primary particulates are controlled using removal systems that have been a standard feature of pulverized coal plants for many yes, Removal efficiencies exeeed 99% Primary particulate removal rates for GCC plants are expected to be similar Secondary particulates are conicolled by reducing NOx and SO, emissions, as discussed above,

-eoninuel)

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Table 2 Emission Controls as an Estimated Percentage of Total Costs for a New Pulverized Coal Plant

Percent of Foal Cost

Plant Capital Cost [Plant O&M Cost 'S0, Controls 12 39% NOx Cons 2 Be Mery Controle i 5 ‘Taal for Basson Cons l6 si

Source: Calculate hy CRS from MIP, Te Fe of Cool 2007, Tables ASD, and Tales A-3TB4 Cau asreuslelrậcpiwcuinasxim he ngon: the bles have sistas or

Carbon Dioxide ‘This section of the report discusses the technieal and cost characteristics of earbon contral technologies for eoal and natural gas plants The cewiinates øf the cost and performance affects of installing carbon controls are luncerain because no power plants have been ult with full-scale earbon capture For addtional infomation on carbon contro technologies, see CRS Report RL34021, Cupniring COs from Coal-Fired Power Plants! Challenges for a Compretiensive Srateey, by Larry Parker, Peer Folger and Deborah D Stine and Steve Blankinship, “The Evolution of Carbon Capture Technology Pans Vand 2."

Power Engineering, March and May 2008."

CO, Removal for Pulverized Coal and Natural Gas Plants “Technology developed by the petrachemical industry, using a elass of chemicals, called amines, canbe used to serulsCO, from fue gas Amine sevudbing iseurrently used to exiract CO, from part ofthe ue gas at a handful of coal-fired plants, 1 produce CO, for enhanced ol recovery and the food industry but the sale is about tenth of wha would be needed to serub 90 of the COs from the entre flue gas

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stream of lange power plant Sealing up amine technology to handle much larger ‘gas ows ata power plant may be technically challenging

Amine serubbing is energy intensive Itdiverts steam from power production and uses pat of the plant's electricity production to compress the CO; fo pipeline transponation to is final disposition, “Amine serubbing is estimated to cut a coal plant's electricity output by about 30% (0 40%." The equipment is also eostly ‘According to one study, the cost or buildings new eval plant with amine subbing is anestimated 61% higher than building thea plan without carbon contol The sae study estimated the cost fora coal plant eof installation, without taking io secount the recent rapid inereae in power plant construction costs, a about S1.600 per KW of not capacity, or almost 1 bilion fora 600 MW plan

"The eost and performance impacts for adding amine scrubbing to @ natural gas fired combined cycle ae also large ‘The estimated reduction in netelecticity ouput is 14%, and he estimated increase in the plant capital cost is about 100% Researchers are attempting to commercialize less costly carbon eaptareweebnologies for eonventional coal and gas plants, but these are stil in early development

Currently four commecial faites fn the United States teat sil plat ae gas to recoter CO, The lest anoun’ of CO, capeured is out 800 tons {1610 MW coal pant wow pide aoa 13,8 on of[CO, dal9; 90% roma wou pe dy In contast,

require exacting 12.000 toos of CO each dy afomnation on curren commercial proces faomHDRIGunmin & Barat, Ine, Caron Diode Capture and Seqaesiation Fepomt 10 Alliant Energy Apail 2008, Report No S861.06 R02, p 8: and Tipiiewsmgs al gen/geaipebicodseqpaper pl] COs emissions fora 0M MW plant sconputed gs follows: 600 MU x9 millon bv of fuel input per MWI 24 Hoots x 3083, pounds of CO released per mist of heat input for bitumines coal, cise by 2 alin Rate of CO, released fiom buming coal is fom EIA, ler Pome? Annual 2006, p92)

MIT The Faure of Coal 2007, pp 25 and 28; "Plot Projet Uses Inovative Press ta Caphare CÓ, From Flue Gis” EPRI four, Spine 2008p.)

Calculate from MIT, The Fuare of Coal, 2007, Table 3.1 (estimates For supercritical pulverized eo,

fpid,p 28, The cost and practicality of» yeuofit woul vary with specific plant ‘conditions Another ennsdeaton tha retrliting carbon sprue to an GCC plan may bot be stsightorwand, An MIT sty suggests that for tecnical esos a developer Tcoking town! possible fare cabo legislation vant build an IGCC pant eat it movie opimateicency today (without eatbon tehniog) ad omnomow (ter carbon control retrofid The developer must make a choice that may result in subopdinal retformance thigher costs and less efielensy eth in cant ot flue opeaton (MIT, The Fadute of Cot, 2007, pp 19150

[Navonal Ensray Technology Laboratory, Cost and Performmce Baseline for Fossil ners Plans, Volume 1, May 2007, EXhDIL 5-28 and pase 481: FIA, Atsanpions 10 the Anna! Energy Outlook 2008, Table 38 The plant capacity drat for the natural gs sombined evel planes ess han forthe pulverized plat pinay bees natal gay

erations much ess carton intensive than buraing oa, so ess CO must be processed ‘The lnwer carbon den i de to the seater efiiensy of a gaia combined eye ‘compared toa pulverize cl plant fewer bes of fust are needed o generate it of oct), and because harning ah of gas pela bon half sch CO, ning abt of coal

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CO, Removal for IGCC Coal Plants Catton capture for an [GCC plant Involves multistep weatment of the synthesis 988 using technology originally developed for ie petroctemical industry Estimates ofthe cost ané performance impact of incorporating carbon capture into a IGCC design vary widely For the sample of studies shown in Table 3, the estimated inrease in capita costs ranges from 32% to 51% The estimated loss in generating egpacity varies by more than 8 factor of two, from 13% 10 28% This wide variation reflects in part tacts specific to different IGCC technologies, hut i also an indication of limited experience with

IGCC technology generally and the integration of carbon eapiure fn particular Table 3 Estimates of the Change in IGCC Plant Capacity and Capital Cost from Adding Carbon Capture

Soureana Changein Net R

TGCC Teehnalogt Generating Capacity | Cowman Plant Cont NETU, 2007 G/Ralnn tr „ Em Tim 0m Set) II 3u EA, 2008 ° mà a EPRI 2006 ‘Shell Be a TT 2007 GEA AN Queneh (TD i nà CoP Eas (eof) 2 wa Genesis su sự

Sources NETL, Cosand Perfomance asetine or Foss rer Plats, Volume I, bit 311 ETA Assmptions othe Annual Energy Ouok 208, Table 38 EPRI, Fesbliy Sid Jor on

TSSMMIT: The Farr Cool 2007 pp 123 190 and 181 a tab 3,

Notes: IGCC = igre Gasfistion Combined Cys NETL = National Exergy Tecnology

MT = NfetaotseteLneiude of Techlngy nfs = nt aval GE» Goer

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'While IGCC teehnoloey is arguably belersuiled for carbon capture than pulverized coal systems, it does not currently provide a simple or inexpensive path to carbon control In addition to the cost and performance penalties and uncertainties, other factors complicate implementing IGCC carbon contol For ‘example, the nation’s largest and least expensive coal supply is westem ‘ubbituminous coal However, the IGCC technologies best suited fr using this coal also appear to incur the largest cos and performance penalties from adding carbon ‘contol technology.”

CO, Allowance Costs Congress has considered legislation that would put ‘cost on carbon emissions, sueh as the Lieherman- Warner Climate Security Act of 2007 (S 2191), If Congress ultimately leislatesallowance-based carbon controls, the estimated cost of such allowances are very uncertain As an illustration ofthis uncertainty, Figure 5 shows EIA's alternative projections of CO, allowance prices under S 2191 Depending on assumptions for such Faetors asthe speed with which nev technologies are deployed and their costs, and the availabilty for purchase of iernational CO, emission offsets, FIA’ sestimate of heprice of allowances by 2030 ranges from about $60 to $160 per metre ton of CO, (2006 dolar) Figure 5 EIA's Projections of S 2191 CO, Allowance Prices (2006$ per Metric Ton of CO, Equivalent) SEES LEP P PIP PIPL E

‘The dry feed Shell and ConocoPhillips E-Gas systems appear toe eter suited to high ‘moisture subbituminous and lignite coalsthan the GE technology which bringscoal [gif asa coalhater slur (excess water reduces the eliceney ofthe gasifier and ino the ‘more oxygen) However the GE technology operates at higher pressure and can ‘quench cooling of the synthesis gas to produce steam forthe CO, shift eacor, Which may make ithe beter choice fr earbon capture MIT, The Future of Coal, 3007, pp 149 = 151; EPRI Feasibility Sua for an Integrated Gasification Combined Cycle Facil ara Tevas Site, October 2006, pp ¥ and vi: and Nesant, Ine, Enivonmental Fooprinss and Coss of Coal-Based Imexrated Gasification Combined Cycle and Pulvericed Coal Technologies, report forthe US EPA, July 2006, p 5-13

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Even the low end of ELA's allowance price forecasts would impose costs far beyond those of existing air emissions regulations Figure 6 compares the price of coal in ELA’ fong-term Reterence Case projection (which assumesonly curent Iw, and therefore no carbon controls) 19 FLA's “eore” case estimate of allowance prices from the S.2191 study Based on EIA’ forecasts, by 2030 the allowance price isthe ‘equivalent of triple the coal price." (As noted above, the outlook for CO allowance pricesis uncertain Different legislative approaches and changes to other forecasting sssumptions can produce very different estimates from those shown here.) Figure 6 Comparison of EIA's Reference Case Coal Prices and § 2191 Core Case CO, Allowance Prices Financial Analysis Methodology and Key Assumptions

This financial analysis of new power plants provides estimates ofthe operating ‘costs and required capital recovery of each generating technology through 2030 Plant operating in fuel prices and the stator end of government cost wil vary from yea to year depending, for example,on changes incentive programs To simplify the ‘comparison of alternatives, these varying yearly expenses are converted toa uniform annualized cost expressed as 2008 present value dollars

© Fora broader summary ofS 2191 allowance price forceass sce CRS Repon RL3H80, Climate Changes Cats nd Benefits of § 2191S 3036, by Lamy Parker and Brent D YYacohuce For an example of how a different legislative approach can fet allowance Prices, see CRS Report RL34520, Climate Change: Comparison and Analysis ofS 1766 find 2191 (S.3036) by Lamy Paker and Brent D, Yacobucs,

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