Economic and Efficiency Outlook for Power Generation from Coal

The need for energy, together with the economics of producing and supplying that

That energy to the end user, are main consideration in coal power plant investment decisions and

operating strategies. Inevitably. There will be a point at which higher efficiency and lower

emissions come at a cost which cannot be justified. Where economic and regulatory conditions

exist which shift this balance consistently in favor of higher efficiency and lower emissions,

improvements become a normal part of running a competitive business. The trend over times has

been towards improved power plant performance.

The Development of supercritical and ultra-supercritical steam cycles, with progressively

higher steam temperatures and pressures, combined with modern plant design and automation,

provide significant potential for further efficiency improvements and the mitigation of CO2

emissions when compared with existing coal-fired power plants. These improvements can be

realized through the progressive replacement of existing assets with new plant designs that

reflect best practices

Figure 1. Shows Projection for the efficiency of and emissions from coal-fired power

generation by 2020. With proper policy and financial support for demonstration, by 2015 the net

efficiency of state-of-the-art units firing hard or bituminous coal could reach 50% (LHV, or

around 48% HHV) at plants lower depending on the moisture content of the coal, but that can be

improved if developments in efficient coal-drying technology are successful, using either waste

heat or low-grade steam.

 Figure 1. Efficiency Improvement Potential at hard coal-fired power plants.

Current coal-fired capacity would be suitable for CCS (Carbon Captured and Storage).

Even then, and assuming a route to storage, case-by-case analyses would be needed to assess

whether existing control systems can be safely adapted and whether the large steam requirement

of CO2 capture equipment can be sensibly supplied from these existing plants.

Owing to the loss of efficiency, add units will provide less power; additional new

capacity would likely be needed to offset this loss.

Implication for Policy Makers

Direct Benefits - These Contributors include the direct value added by construction

and operation of AC plants. They Include employee compensation, reductions in

electricity prices, returns to investors, income on property and payments to

government. Direct Employment is generally greatest during the construction phase,

but large plants do maintain a significant workforce for operations and maintenance

throughout their lives.

 Indirect Benefits The main indirect benefits contributions result from the ripple

effect of payments for the construction and operation of AC plants. The greatest of

these indirect contributions by coal plant operations are clearly seen in the mining and

transportation sectors. These Indirect benefits are lost through leakage that occurs

when imported resources, goods and services are procured at costs that exceed

options domestically available

Induced Benefits - are those that result from increased spending in the local economy

from economic gains caused by the plants. These economic gains can come from

increased household income due to increased employment that is spend on final

goods and services, or from increased household income resulting from lower

electricity prices caused by the more efficient plant.

Direct Benefits

Plant construction - Advanced coal units can be multi-billion dollar investments that

can provide a significant boost to local economies, as well as domestic equipment

suppliers, and the construction of the current generation of AC units is a multi-year

process that employs thousands of construction workers and engineers.

Many of these jobs require highly skilled workers with specialized skills (and

correspondingly high wages). As an example, the construction of the most recent AC

blocks at Neurath took approximately six years, and during that time more than 7 000

full-time jobs were supported, ranging from engineering and financial services to

construction and unskilled labor.

Compared to other conventional thermal power plants, coal-fuelled power stations

have a particularly long supply chain, and thus substantial socioeconomic benefits.
 The extraction and transport of coal generates substantial economic activity, and leads

to ancillary benefits as portions of this infrastructure can serve multiple purposes.

Indirect Benefits

Mining and extraction - Coal plants are unique in that they require a constant supply

of solid fuel that must be mined and transported, and that the by-products of

combustion (e.g. ash) must be safely disposed of. Mining practices vary widely based

on coal characteristics and the local terrain. Lignite and some subbituminous coal

reside less than 100 meters from the surface, and can be mined in open-pit surface

mines. Harder subbituminous and bituminous coals reside deeper in the ground, and

must be removed using underground mining techniques. But a common characteristic

is that the mining of coal is a highly capital-intensive process which results in much

economic activity.

Coal transport- Once mined, coal must be transported to the power plant. This is done

usually by rail or by sea, and in very limited cases, by truck.7 In the United States, for

example, 70% of all coal transportation is done via rail. Other delivery methods

include by ship, by truck, and by conveyor or slurry pipeline. The method of

transportation depends on plant access, size, and supply region. Worldwide,

transportation methods depend on whether a country is an importer or exporter of

coal. Most coal transported in the Asian Pacific is done via barge. In Germany, most

lignite plants are located at mine sites, limiting transportation costs. The impact of

coal on infrastructure development is more noticeable in developing nations due to

the absence of pre-existing infrastructure. The rail lines and roads that are built to

transport coal from the mine to the power plant can be utilised by a variety of
 industries. The investment in infrastructure caused by the energy industry helps to

foster economic development.

Coal treatment - Coal treatment prior to combustion depends on the chemical

composition of the supply coal, technological specification of plant equipment, and

any environmental regulations that may apply to the plant. Numerous technologies

exist to dry wet coal (therefore increasing the energy content) or apply chemical

treatments to the coal to limit formation of various pollutants (primarily NOx and

SO2). Here again, the economic effects from coals supply chain are felt in multiple

industries and regions. The capital equipment, labour, chemicals and jobs from coal

treatment facilities all contribute to the economic benefits of coal power plants to the

region.

In addition to formal economic definitions of benefits, quantified societal and health

benefits are identified as well. These include all ancillary benefits not included as

direct or indirect benefits, such as the benefits of improved health, environmental

outcomes, energy security, poverty reduction, socioeconomic enhancement, and

economic competitiveness. Whereas some of these benefits may be difficult to

quantity precisely, evidence exists to indicate they can exceed the direct and indirect

benefits noted above. These effects do not conform closely to formal economic

definitions, but nonetheless have real effects.

Induced Benefits

Lower electricity prices Lower electricity prices have far-reaching effects on the

economy. Lower electricity prices benefit citizens and families by reducing energy

costs. But lower prices increase industrial competitiveness as well. Countries which
 enjoy a lower cost of energy can produce goods at a lower price, thus increasing the

profits to the home country, and increasing economic activity. Most nations, even

highly industrialized ones, are becoming increasingly electrified (e.g. electric cars).

As the penetration of electric technologies into the grid increases, so increases the

value of lower and more stable electricity prices.

The research included an analysis of the potential benefits if the fleet of aging coal

plants were to be replaced by new AC units. Germany was used as the example

because of good data availability and synergies with our analysis of Neurath.

Modern coal plants have reached efficiencies of over 43%, as evidenced by the

Neurath F and G lignite plants commissioned in August 2012. However, the majority

of the worlds fleet is much older and much less efficient. The United States coal fleet

averages 32% efficiency, with the lowest decile at 27.6%. Worldwide, the average is

33% efficient. These inefficiencies contribute to the higher cost of power.

Scenario

Charles River Associates (CRA) estimates if all German coal was converted

overnight to state-of- the-art technology, German power prices would decrease

by 6.8%, saving consumers EUR 1.9 billion annually. If all German lignite

plants over 30 years old were removed from the supply stack and replaced with gas,

CRA estimates power prices would increase by 11.6%, costing onsumers more than

EUR 3.4 billion annually.

 These are

clearly

bounding analyses, as there is no realistic possibility that this could occur,8 but the

significant impact serves to illustrate the potential impact that AC technology has on power

markets and the economy.

SOCIETAL IMPACTS

Taxes - Governments receive a significant amount of revenue from taxing coal-related

activities. In 2011, US mining activity contributed over USD 20 billion in tax

payments to federal, state, and local governments. This figure includes direct

contributions from the mining industry, but not indirect and induced tax contributions

from mining activity or the taxes imposed on coal-fuelled electricity generation,

which would further increase the effects.

SCENARIO

For example, in China electricity consumption is a significant source of tax revenue

via a Value Added Tax (VAT) of 17%. Based on the latest on-grid prices for Zhoushan

Unit 4 and Ninghai Units 5, their annual VAT contribution is USD 19 million and

USD 65 million, respectively. The combined taxes of VAT, income tax and urban

construction and education surcharges by Zhoushan Unit 4 and Ninghai Units 5 and 6

is USD 153 million annually.

 Similarly, some EUR 83 million of tax revenue was collected as a result of the

construction phase of Neurath Units F&G between 2005 and 2011. Furthermore, the

the units are estimated to provide EUR 1.4 million per year in tax revenues through

unit operation.

Public health and welfare benefits from increased electrification - In addition to

the economic benefits, clean coal technologies can produce health benefits resulting

from emissions reductions through retrofitting and replacing old coal units. AC power

plants have substantially lower emissions than the older generation of plants. These

emission reductions result in health improvements which can be estimated based on

statistical relationships between emissions and population health.

SCENARIO

Coal technology research funding has effects throughout the economy. A great deal of

funding has been awarded to academic institutions to promote research on advanced

coal technologies. In 2012, the US Department of Energy awarded over USD 2.7

million to universities to support research and development. A large portion of this

funding was awarded to researchers focused on the development of new technologies

and materials to increase the efficiency of coal generation. New materials, such as

new alloys used to produce turbines, can be used for other purposes and in other

industries. Progress in advanced coal generation can have a resounding impact on

technological advances in other industries.

 Energy independence - Coal is an abundant resource which can be sourced

domestically in many developed and developing nations. The widespread nature of

coal resources creates a saturated world market with multiple options for any nation

to obtain additional coal supplies. Coal provides energy security in ways that other

fuels cannot, due to its chemical make-up. Coal can be transported and stored safely

and easily. Coal can be stored at power stations and used in the event of emergencies

to maintain a reliable energy supply.

Furthermore, some countries or regions rely heavily on imported fuels to satisfy

domestic energy demand. Often the source of these fuels can be unstable, or

vulnerable to political risks. For example, central European nations rely on imports of

Russian natural gas, and recent tensions in that region have resulted in Russia

reducing natural gas exports.

SCENARIO

Eighteen countries in the European Union rely on natural gas from Russia to satisfy

a large percentage of their natural gas consumption. In June of 2014, Russia halted all

exports to Ukraine after Ukraine balked at its gas debt to Russia, claiming that the

price of gas had been unfairly hiked. This example provides a strong case for why

nations need to rely on coal-fueled generation in order to have energy security. Not

all nations have extensive natural gas resources, but most nations have coal

resources. As natural gas supply emerges as a potential political weapon, it is

important that nations be reminded of the important role coal-fuelled generation plays

in national security.