Faced with a massive turnover in capital stock in the electricity sector, together with growing environmental concerns regarding the use of coal as the primary generation fuel in North America, the U.S. government decided, in the Energy Policy Act of August 2005, to provide financial incentives for investment in low-and zero-emitting industrial technologies, especially in power generation. The intent of the EPAct is, in part, to spur investment in nuclear and coal gasification.
The incentives include loan guarantees and tax credits (for power production and advanced gasification; see the DOE’s press release), as well as construction delay insurance for nuclear generators.
Has it worked? Yes in some cases, no in others. The Internal Revenue Service has approved applications for projects totaling $1 billion in gasification tax credits. But the loan guarantee program is stalled as various players in and out of government argue over what the EPAct actually guarantees.
Some might argue that the gasification projects—whose generation industry proponents include the Southern Company and Duke Energy, favorite piñatas of the environmental movement—are yet more government handouts to profitable major emitters.
That might be true if coal gasification suffered from the same technological hurdles as biomass gasification (the Moby Dick of government-sponsored energy research all over the world). But it doesn’t. Coal gasification is miles ahead. And while its potential as a power-generation technology might still be somewhat over-stated—there are still economic and technological considerations impeding scale-up of gasification reactors to the 12,000 tons-per-day range, which they would have to reach in order to be competitive with modern pulverized coal generation systems—there is no denying gasification’s potential as a solution to the natural gas supply problem in North America. Most of the tax credit applications came from companies that use natural gas as a manufacturing feedstock, not as a fuel for power generation.
(A suggested solution to the economic impediments of gasification for power generation is polygeneration—i.e., converting gasified coal to chemicals and liquid fuels, in addition to electricity. This would help investors get more use out of their gasifiers, and could make the overall proposition more profitable.)
Moreover, when you have companies like General Electric, ConocoPhillips, Shell, and Siemens rolling out gasification reactors and power turbines—and big electricity market players like American Electric Power applying for licenses to build gasification plants for commercial power production—you know that gasification in power generation is a serious technology whose time may have come.
But the big question is will the gasification industry work out the scale-up problems before generation companies decide to go with what they know and replace ageing pulverized coal plants with new pulverized coal plants? And will this happen before the RGGI cap-and-trade system takes effect in the U.S. northeast, or the U.S. federal government imposes national emission restrictions on power generation?
In Canada, where we have similar investment/environment problems—and, thanks to our massive western coal reserves, similar opportunities—we could and should offer incentives similar to those under the EPAct. Alberta’s oilsands get all the bad press from the environmentalists but the province’s power generation sector is its biggest single emitter. Those emissions can only drop if generators build nuclear and/or low-emitting coal plants. If we want that to happen, let’s make it worth their while.
What form should these incentives take? Should they mirror those offered in the EPAct? Given that our federal finance minister, Jim Flaherty, has indicated he wants more private investment in infrastructure in Canada, this is becoming a hot topic. So I’ll take it up in subsequent posts. Stay tuned.