Clean Coal Update—Strategic Planning Using Real Carbon-Constrained Market Experience

by Tony Carrino, HSB Solomon Associates

Coal has been the backbone of the North American power generation market for decades. But as policymakers and the public grow increasingly concerned about carbon emissions, coal as a fuel source has been taking as much heat as it generates.

Many expect traditional coal plants to experience dramatic changes in utilization during the next several years as more renewables enter the market and cap-and-trade legislation of some kind becomes a reality.

But while existing coal plants may become less dominant in a carbon-constrained market, emerging clean-coal technologies have an opportunity to fill the void.

By increasing the amount of energy that can be extracted from a single unit of coal, highly efficient modern plants can emit nearly 40 percent less carbon dioxide than traditional units.

This prospect, among other anticipated benefits, positions clean coal well alongside combined-cycle gas turbines (CCGTs), renewables and other less carbon-intensive energy sources over the long term.

Naturally, market factors, as well as the timing and details of government regulation, will accelerate or defer this replacement activity.

Whatever the timetable for change may be, preparing for the possibilities is incumbent upon the strategic planning function of North American power generators.

This includes long-term planning as well as short- and intermediate-term strategies for tactically managing transition.

While new clean-coal technology plants are built and come into stable operations, the existing coal fleet will continue to carry the load, but it will be used in a manner different than its design or historic operating modes.

How much do you know about what to expect in this sort of transition?

Parallels With Europe

At Solomon Associates, we think one of the best ways for North American power generators to plan for a carbon-constrained market is to study and learn from the experiences of Europe, which has operated under a cap-and-trade regime since 2005.

Some North American operators have been skeptical about how much they can glean from the operating experience of European generators, calling comparisons “apples and oranges” and of limited value.

Despite the differences, however, we can expect some important parallels with the European experience. Based on abrupt changes in plant utilization observed in Europe, for example, we can anticipate similar upheaval at North American plants as a focus on carbon reduction transforms the usage profile of generating units.

A significant period of adjustment will affect the use and efficiency of the power generators’ portfolios.

These changes likely will result in higher unavailability, higher maintenance costs and lost revenues: risks that can be mitigated (although not eliminated) by advance planning.

How this period is managed will be critical to performance during the transition to longer-term solutions, such as the integration of new supercritical and ultrasupercritical units into the coal fleet.

In any scenario, the transition from the existing fleet fuel and technology mix to the eventual future fleet will depend on the existing coal and gas turbine installed fleets.

The data in this analysis comes from Solomon Associates’ proprietary database, used in the company’s worldwide benchmarking and consulting services.

For this article, we studied data from participating power generation units from 2005-2008, focusing on North American and European generation, further segregated into coal-fueled steam and gas-fired combined-cycle technologies.

What the Data Shows

Let’s first look at how coal utilization changed with the carbon-constrained European market evolution. In the case of coal plants, we can observe a dramatic change in the use of European units after 2005.

Units built to be baseloaded and run continuously now are being turned on and off frequently. The result is more starts and longer periods of reduced load operation for these units, producing more thermal cycles.

Periods with thermal cycles have a higher likelihood of producing unavailability than periods of normal operations. (See Figure 1.)

We can also look at heat rate during the study period. This is an important metric because we can expect heat rate to become the primary mechanism for managing carbon-emission ceilings within the coal-generating fleet.

During the analysis period, European coal plant heat rates are significantly better than those of their North American counterparts. Indeed, the heat rate of North American coal units worsens substantially during the period, likely as a result of heavy usage and a focus on availability to monetize a fuel cost advantage rather than pursuing heat rate improvements.

Notable is how European units achieved this improvement in heat rate and what they sacrificed in doing so.

Even though European operators have been more aggressive in implementing advanced coal-generation technologies than North American operators, they still have faced a transition period that has required difficult adjustments.

Existing coal plants in Europe were being operated in ways they never had before. Only a few operators adjusted proactively to this new operating scenario for their coal assets.

By not adjusting rapidly to the new operating scenario, reliability suffered. Coal units suffered unreliability in plant equipment where they had no prior experience with problems.

Understanding the plant equipment where these problems cropped up depends on having access to good, detailed data.

Cost increases also are apparent in Europe after carbon trading. Total cash less fuel per megawatt hour (TCLF/MWh) steadily increases for North American and European coal units during the study period, but cost increases are most pronounced in Europe after carbon trading goes into effect.

TCLF/MWh increases by 60 percent for European coal units compared with 30 percent for U.S. and Canadian units during the study period.

The overall trend of increasing TCLF/MWh is driven by rising costs and reduced generation.

Real Assumptions for Planning Models

North American generators can use lessons learned and data from the European ETS experience to plug real assumptions into models for existing coal and gas turbine fleet performance—reliability, heat rate, generation cost per megawatt hour changes, etc.—to better evaluate future scenarios as any imposed transition is forced into the industry.

Success during the transition will be driven by early adaptation and adjustment to the new market scenarios.

North American generators should consider partnering with consultants who have the data and experience with European plants under carbon trading to help them implement their transitional tactics and long-term strategies for a future, carbon-ordered world.

Author

Anthony “Tony” J. Carrino is senior consultant at HSB Solomon Associates. Reach him at tony.carrino@solomon online.com.

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