State Incentives for Development of Clean Coal Facilities Karen R. Obenshain, Sc.D. National Association of Regulatory Utility Commissioners: Staff Subcommittee on Accounting and Finance April 23, 2007

Fuel Diversity and Innovative Technologies are Critical n Meet future energy demand n Provide affordable, reliable energy n Establish energy security n Generate energy efficiently with minimal environmental impact

Why Coal? n Accounted for 50 percent of all electricity generated in the United States n Sufficient domestic reserves for at least 150 years n Innovative technology development has made ‘clean coal’ power a reality n Future issues: CO 2 emissions

What are Clean Coal Technologies? n Combustion – Pulverized Coal (PC) –Supercritical –Ultra-supercritical –Circulating fluidized bed n Gasification –Integrated Gasification Combined Cycle

DOE-NETL Database n 159 new coal-fired power plants* n ~45% propose to use advanced technologies: –22 circulating fluidized bed units –14 supercritical units –4 ultra-supercritical units –32 IGCC *DOE-NETL 1/24/2007

Supercritical n New ‘crop’ using steam at temperatures of 600 to 605 C (1110 – 1120 F) and sliding pressure operation n In some cases, the reheater steam temperatures are as high as 1135 F n Current bids to suppliers requesting steam temperature capabilities between 1100 – 1115 F

Ultra-supercritical n DOE USC defined: 1400 F and 5500 psig n EU USC (Thermie) defined: 1292 F and 4500 psig n Need to move to nickel-based materials due to high temperatures and pressures

Circulating Fluidized Bed n Coal is burned on upward-blowing jets of air during combustion at such a velocity that the gases and solids produce a “bubbling” mixture. n The fluidizing action promotes complete coal combustion at relatively low temperatures, and provides a means to transfer combustion heat efficiently from the bed to the steam tubes. n This technology eliminates the need for external pollution controls, such as scrubbers (a scrubber is a device that uses a liquid spray to remove aerosol and gaseous pollutants from the air stream). n Largest existing CFB is around 500 MW.

IGCC n Gasification is the best way to use a gas turbine with a coal feedstock n Gas turbine combined with a steam turbine = high efficiency and reduced emissions n Reduces all criteria pollutants as well as mercury n Lends itself better to CO 2 capture and sequestration technology development than pulverized coal n Currently works best with high quality coals (anthracite and bituminous)

Non-technology Challenges –Financing –Cost recovery –Environmental groups opposition – State regulators opposition –Labor and material shortages –Permitting and siting

State Incentives for Clean Coal n States with incentives for Clean Coal Technologies: AK, CO, ID, IL, IN, KY, MN, NY, ND, OH, OK, PA, RI, TX, VA, WV, WY n States with specific incentives for IGCC: CO, IL, IN, KS, MN, OH, PA, TX, WY Considering action: KY, MS, NM, VA, WV

Alaska n Alaska Industrial Development and Export Authority (AIDEA) n Provides bond financing to a “plant or facility demonstrating technological advances of new methods and procedures and prototype, commercial applications for the exploration, development, production, transportation, conversion and use of energy resources.” n Projects must be able to demonstrate that they will be able to produce adequate revenues to repay the bonds

Colorado n Incentives for construction of IGCC n Must use CO or other western coal n Must demonstrate carbon capture and sequestration for a portion of the CO 2 emissions n May not exceed 350 MW without a finding from CPUC n Incentives include: waivers of CPUC’c certificate of public convenience and necessity; full cost recovery from customers; recovery of additional costs; waiver of CPUC rules on requiring competitive resource acquisition

Idaho n Idaho has adopted a moratorium on the construction of new coal fired power plants effective until April However, this moratorium does NOT apply to IGCC facilities.

Illinois n Coal Revival Program n High Impact Business Program Property Tax Abatement n Long-Term Contracting n Illinois DCEO Coal Grant Programs

Indiana n Tax credits for IGCC facilities – 10% of the first $500 M plus 5% of any investment < $500 M n Financial incentives for clean coal and energy projects – generation, transmission, renewables

Kansas n Tax credits for the development of new coal gasification facilities

Kentucky n Tax credits for clean coal facilities - $2 per ton KY coal n Does not specify technology type

Minnesota n Provided an annual grant of $2 million for 5 years to the Mesaba Energy IGCC plant n No incentives for other clean coal plants

New York n Advanced Clean Coal Power Plant Initiative (ACCPPI) – goal is to build one or more clean coal power plants within NY –New York Power Authority (NYPA) will agree to purchase power –NYPA may become a minority share partner –NYPA will establish a Clean Coal Initiative ($50 M) to implement carbon sequestration technology when it becomes available –Tax exempt bonding up to $200 M per year (cap: $1 B)

North Dakota n 20% of funds in coal development impact trust fund may be appropriated to clean coal demonstration projects n New plants are eligible for a tax deduction = 1% of total wages and salaries paid in the state for the first three years; ½% for the fourth and fifth years n Investments in new power plant exempted from state’s 5% sales and use tax

Ohio n Ohio Coal Development Office (OCDO) – awards funds to coal R&D for use of high-sulfur Ohio coal n Incentives – grants, loans, and loan guarantees

Oklahoma n Offers coal-fired electric generation facilities a tax credit of $5 per ton of Oklahoma-mined coal

Pennsylvania n Energy Deployment for a Growing Economy (EDGE) – offers incentives for IGCC technology n A one-time option of allowing older facilities to continue using coal without updated air pollution controls if the utility agrees to replace the plant with an IGCC facility by 2013

Rhode Island n Law directs state’s energy facilities siting board to give priority to projects based on eight criteria, once of which is the use of coal processed by “clean coal technology” n “Clean coal technology” is defined as a technology developed in the DOE clean coal technology program and shown to produce emissions levels substantiailly equal to those of natural gas fired power plants

Texas n $22 million in grant funds for clean coal and gasification projects n Funded the site screening process for possible FutureGen plants and allows expedited permitting for projects that are related to the construction of a FutureGen component n Under the Water Code, the state assumes liability of CO 2 captured and stored from a clean coal project. Clean coal project is defined as “…the construction of electric generating, steam production, or industrial production facilities, the modification of existing facilities, or other projects that install technology, including gasification, designed to utilize coal while reducing emissions of air contaminants.”

Virginia n Permit application priority for “clean coal project” n “Clean coal project” is any project that uses any technology, including technologies applied at the precombustion, combustion or postcombustion stage, at a new or existing facility that will achieve significant reductions in air emissions of CO 2 or NO x associated with the utilization of coal in the generation of electricity, process steam or industrial products, which is not in widespread use

West Virginia n The West Virginia PSC has the authority to authorize rate-making allowances for electric utility investment in clean coal technologies

Wyoming n Legislation creating a sales and use tax exemption for new goal gasification or coal liquefaction facilities and the equipment used to construct a new facility or make it operational

Questions? Karen R. Obenshain (202)