No one should be surprised by this one.
Last week, we got word that American Electric Power (NYSE: AEP) would be putting a hold on its plans to commercialize a new carbon capture and storage (CCS) project.
According to CEO Michael Morris, the lack of federal greenhouse gas reduction requirements is to blame:
The commercialization of this technology is vital if owners of coal-fueled generation are to comply with potential future climate regulations without prematurely retiring efficient, cost-effective generating capacity.
But as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place.
While I don't disagree with Morris, I maintain that the biggest problem with getting CCS off the ground is not a regulatory one...
A $2 Billion Money Pit
The truth is coal-fired power generation only has one advantage: it's insanely cheap.
And quite frankly, it's only cheap because we refuse to account for externalities — and we allow lawmakers to pony up some very generous tax payer support to keep the industry humming along. But hey, I'm not here to regurgitate uncomfortable realities.
Bottom line is the market could care less about this stuff; all the market really knows (or cares about) is this: No form of power generation provides us with more electricity than coal.
As long as it remains cheaper than nuclear, solar and wind, this is not something that will change anytime soon. And it's for this very reason you'll never see any real commercial-scale “clean coal” technology take root.
You see, it wasn't long ago when the government's centerpiece for its “clean coal” strategy, FutureGen, was shelved due to the prohibitive cost of implementing this technology...
FutureGen was intended to be a near zero-emissions coal-fired power plant that used CCS. It never got off the ground because the costs for the planned 275 MW coal-fired power plant had ballooned to nearly $2 billion — and that was just to build it. That price tag didn't include the cost of the actual coal, shipping, or operational costs.
No matter how you looked at it, the thing was a loser from day one.
But that's how it goes with “clean coal” technology; it's insanely expensive, and it actually serves to deplete our remaining coal reserves at a much faster rate.
The Incredible Shrinking Coal Bounty
As my colleague Ian Cooper showed you in a previous post, we may actually be at peak coal production this year.
While most still believe we have a whopping 250-year supply, the most recent USGS data tells us that we actually have fewer than 100 years remaining (based on current rates of consumption and not accounting for increased exports).
In other words, our massive coal supply is shrinking by the day. And with the implementation of CCS technology, we actually expedite the depletion of our coal bounty.
You see, the carbon capture and sequestration process is actually a bit of an energy hog. It consumes a portion of the energy that's actually produced at a coal-fired power plant.
Peak energy expert Richard Heinberg has suggested that if carbon capture and sequestration is implemented, it will increase the amount of coal required in order to produce the same amount of energy we rely on today. Heinberg estimates the “energy penalty” for this technology could be as high as 40 percent.
This is not a winning proposition for coal-fired power plant operators or consumers.
An Uninsurable Risk
And here's one more issue that few — especially CCS advocates — are willing to discuss: Who the hell wants to insure these things?
As the CEO of Kinder Morgan Energy Partners wrote a couple of years ago:
Clean coal is a bunch of hooey until legal liability gets sorted out. When it comes to burying CO2 from coal-fired power plants, Kinder Morgan is not willing to sign up for guaranteeing to the U.S. government or to whomever that it will forever stay in the ground in this salt dome in Louisiana — and it doesn't — just come back and see ole Kinder Morgan and we'll make you good for it.
I guess sometimes you just have to refer to a Texas energy exec to get some straight talk.
If implemented, it will cost consumers a fortune. That's why it'll never see the light of day, no matter how many coal state senators shake down tax payers to make it happen.
If you're like me and enjoy making a ton of dough in clean energy, stick to actual clean energy. Don't waste your time with “clean coal.” You'll just end up getting burned in the end.
And if you really want to make money in coal, let the suckers chase these CCS pipe dreams while you focus your attention on where the real coal action is — most of which is actually outside U.S. borders.
To a new way of life, and a new generation of wealth...
Editor, Energy and Capital