oversight

Utilities' Potential Use of Clean Coal Technologies

Published by the Government Accountability Office on 1990-03-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     United   States General Accounting     Offke
                     Testimoq
GAO

For Release           Utilities'   Potential        Use of     Clean
on Delivery           Coal Technologies
Expected    at
11:OO a.m.     EST
Wednesday
March 28, 1990




                      Statement     of
                      Victor     S. Rezer.des
                      Director,     Energy     Issues
                      Resources,      Comnunitv,      and   Econorr;c
                         De\7elopment     Divis>or,


                      Before    the
                      Subcommittee     on Economic    Stabilization
                      Committee     on Banking,   Finance     and
                         Urban Affairs
                      House of Representatives




GkOjT-RCED-9O-5E                    :
Madam Chair      and Members of the         Subcommittee:

         We are pleased to be here today to discuss                   our past work on
the Clean Coal Technology               program and the preliminary           results    of
our nationwide            questionnaire     survey   on utilities'       plans to use
clean coal technologies.                My comments today will          address the
possible         impact that clean air legislation              might have on the
prospects          for introducing      these technologies         in the United States.
Our survey and past work were done at the request of the Chairman,
Subcommittee           on Energy and Power, House Committee on Energy and
Commerce.            The Chairman has agreed for us to testify               before you on
our     utility       survey work, which has not yet been completed.                   I
should also caution              you that my comments in this testimony               on our
utility         survey are subject        to change.

       In summary,      our work    shows that:

       --   Enactment of acid rain legislation                 would provide     a major
            impetus for utilities              to consider   using clean coal
            technologies.           Currently,     utilities    plan to use these
            technologies        on only about 5 percent           of their  coal-fired
            generating     units.        However, should acid rain controls              be
            mandated,     utilities        would consider      such technologies       for as
            many as 50 percent           of their      units to reduce sulfur       dioxide
            emissions     and 75 percent          of their   units to reduce nitrogen
            oxide emissions.

       --   Utilities     indicated       that their  willingness     to consider
            specific    technologies         depends on the severity     of the
            emission    reduction       requirements,    target   dates for
            compliance,      present      and future  electricity     demand
            requirements,       their     confidence  in the technologies'
            expected performance,            and cost considerations.       Generally,
            the more stringent          the requirements      and the more lead time
            provided    to comply,        the more clean coal technologies        were
          considered       as viable   options.   They also indicated        that
          they would cons i der other options         (such as switching        to
          low-sulfur       coal or using conventional      scrubbers)    to achieve
          emission      reduct i on requirements.     However, not all coal-
          fired    units would need to reduce emissions          (about 6 to 21
          percent     already    meet the emission    reduction    scenarios      in
          our questionnaire!.

     --   Uncertainty    about the commercial       availability         of emerging
          clean coal technologies        is a key factor        in determining         when
          they could be widely       deployed.     Despite their         potential,
          the new technologies       may not contribute         significantly        to
          the reduction    of acid rain-causing        emissions        during    the
          next 15 years.      Many of these technologies            are expected to
          be commercially     available     between the mid-1990s            and 2000,
          but this time frame could be somewhat optimistic.                     Problems
          and delays have been experienced          under the Department             of
          Energy's    (DOE) Clean Coal Technology         demonstration         program
          in formalizing     cooperative     agreements    with project         sponsors
          and getting    demonstrations      underway.

     --   Even after      the technologies       are commercially       available,
          utilities     will   likely   test them on one unit before
          installing      them on others,      and lead time will         be needed for
          ordering     and manufacturing       the technologies.          Thus,
          according     to industry     estimates,     it could take another           5 to
          10 years beyond the date of commercial              availability         for the
          technologies       to be widely    de-ployed.    Once they are proven
          and widely deployed,        they could play a major role in
          combating     acid rain.

HOWWE DID OUR SURVEY

     Before I proceed,  let me provide  some background     on the scope
and methodology  of our study.  To determine  how utilities      would
                                           2
respond to different                emission     reduction      requirements       and compliance
dates, we developed                a comprehensive        questionnaire        that included
four hypothetical              acid rain control          scenarios.        Our scenarios,
which are summarized in attachment                      I to my statement          (and on the
chart before you), were based on our analysis                             of acid rain control
bills     introduced         in the 100th Congress.              As you will       note, our
scenarios       require        different      levels    of sulfur       dioxide    and nitrogen
oxide emission            reductions--we         refer to these as "moderate              and more
stringent       reductions         "--by either      a 1997 or a 2004 compliance              date.
In developing            our questionnaire,          we obtained        technical     assistance
from utility           industry       groups,    DOE, and the Environmental             Protection
Agency (EPA).             We also visited          several    utilities       to test the
clarity       of our questions.              The specifics        of our methodology         for
 selecting      utilities          and generating        units and for analyzing
 responses are also included                   in attachment         I.

ACID RAIN CONTROLS WOULD
GREATLY INCREASE INTEREST

       Few utilities         have current      plans to use emerging clean coal
technologies       at their      existing     power-generating     units to reduce
sulfur    dioxide    or nitrogen         oxide emissions.       Our analysis    showed
that utilities       planned to use such technologies              on only about 5
percent     of their    coal-fired        units before     2010.   However, given
acid rain control          legislation,       many more would look to these
technologies       to meet emission          reduction   requirements.       Our survey
indicates      that utilities         would respond to our acid rain control
scenarios      in the following          manner.

Sulfur     Dioxide     Emission     Reduction

       As shown in figure    1 (and on the chart before you), utilities'
interest   in using clean coal technologies       to meet sulfur  dioxide
emission   requirements    seemed to be linked    more to the time frames
for compliance     than the level   of reductions   to be met.   Our
                                                 3
     analysis    showed that utilities           would consider     such technologies    for
     up to 51 percent        of their    coal-fired     units under a 2004 compliance
     deadline,     but only for up to 25 percent            of their    units under a 1997
     compliance     deadline.       I should point out that the questionnaire
     results    also indicate       that about 16 to 21 percent of utilities'
     coal-fired     units would already          meet  our sulfur    dioxide  emission
     reduction     scenarios,     therefore,      they may not be affected       by acid
     rain control      requirements.


Figure 1: Options to Reduce Sutfur
Dibxide Err&ions
                                     100   Parant   ot Coal-Fimd   Gwwating     Units The! Would Crmldn   the Options




                                           Mcd*m0                  stlingml
                                           Reductions   by         Raductlons   by
                                           7 997                   1897




             I should also add, as figure          1 indicates,     that clean coal
      technologies        were not the most frequently        cited options     for
      reducing     sulfur     dioxide  emissions   under three of our four
      scenarios.        The utilities    would also consider       conventional     options
      and technologies,          such as switching   to low-sulfur      coal at up to 46
                                                             4
percent    of their      units and installing          conventional         flue gas
scrubbers     at up to 35 percent           of their     units.        For example,        under
a 1997 deadline        with moderate emission            reduction       requirements,
utilities     would consider         switching      to low-sulfur        coal almost twice
as often as using clean coal technologies.                       Given the same 1997
deadline,     but with more stringent             emission      reduction       requirements,
they still      indicated      that they would consider              switching       to low-
sulfur    coal or using conventional              scrubbers       in more instances          than
using clean coal technologies.                 Only   under our 2004 deadline
requiring     stringent       emission     reductions      did utilities          indicate     they
would opt for clean coal technologies                  more frequently           than
conventional       options.

Nitrogen     Oxide    Emission      Reduction

        As shown in figure         2 (and on the chart before you), utilities'
interest    in using clean coal technologies                  for nitrogen      oxide
control    was more directly         related      tc the severity       of the emission
reduction     requirements       than the timing          of the compliance        deadlines.
Our analysis      of utilities'         responses      showed that under either           a
1997 or a 2004 deadline,            utilities       would consider       such technologies
to reduce nitrogen          oxide emissions         at 53 to 57 percent         of their
coal-fired      units under moderate emission                reduction    requirements       and
at 72 to 77 percent          of their       units under more stringent
requirements.        The questionnaire           results    also indicate       that about
18 percent     of utilities'        coal-fired        units would already         comply with
our moderate nitrogen           oxide emission         reduction     scenarios     and about
6 percent     would meet the stringent              scenarios.
Figure 2: Options to Reduce Nitrogen
Oxide Emissions                        100   Pefcmt    of Cbd-Fhd        Gwwnting     Units That Would Coddn                thr Otstiom

                                        w
                                        so




                                             Modonte                     stlingeni                       k.d*nt.                stringent
                                             Reductions      by          Reductions      by              Rductlma    by         Rductbm     by
                                             1997                        1997                            zoo4                   2004
                                             Hypolhtiial       Emtalon     Requlramwts          and Compliant        Cata




                                                           Take No Acbon     Uw hkas          Em,srior     Targets




              This high level        of interest       in clean coal technologies            for
       nitrogen    oxide control         seems   to be based mainly on utilities'
       optimism    that a group of related             technologies        categorized    as low-
       nitrogen    oxide combustion          can be successfully           deployed.     Some of
       these technologies         have already        been successfully         demonstrated     in
       newly constructed        boilers.        Although     retrofitting       boilers   with this
       type of equipment        is still       experimental,        several    utilities
       expressed     confidence      in the process on the basis of their
       experience     with using the technology              in new boilers.

       COMMERCIAL AVAILABILITY OF THE
       NEW TECHNOLOGIES IS UNCERTAIN

               Although acid rain control    mandates may encourage utilities                                                                       to
       give    much more consideration    to using clean coal technologies,                                                                      the
                                                                  6
new technologies          have not been successfully          demonstrated.         Industry
has indicated       that a new technology          is not considered        to be
successfully       demonstrated      until   it has undergone multiple
commercial      demonstrations       addressing      a range of boiler        designs,
fuel types,       and other operating        variables     to provide     potential
users with information            and experience      upon which to judge costs,
efficiency,       and reliability       when compared to conventional
alternatives       for reducing      emissions.       On this point,      about 41
percent      of the utilities       with coal-fired       units  indicated      that
having multiple        demonstrations       of the technologies        that seemed most
promising      was the best way to promote the commercialization                      of
clean coal technologies.

       According     to utility      and coal industry     estimates,        many     of the
emerging technologies           should be demonstrated       and commercially
available     between the mid-1990s         and 2000.     These estimates
generally     assume   that DOE's Clean Coal Technology               program will        be
fully    funded and that the selected          demonstration        projects      will    be
completed     successfully       and on schedule.      As you know, DOE has
conducted     three solicitations        (or rounds) for project           proposals
under this program and has two more planned.                   As of February           28,
1990, cooperative        agreements     had been completed        and signed for 13
of the 38 projects         in the program,     but only 3 projects           were in the
demonstration       phase.

       In March 1989, we reported        that DOE had experienced       major
delays in negotiating     cooperative        agreements   with round-one    project
sponsors and three projects        withdrew. from the program because of
sponsors'    difficulties   in finalizing        project  financing  and other
business   arrangements.1      Our follow-up        work has shown that these
problems have continued       under round two of the program.           (DOE has
recently   taken action   to shorten       the agreement formalization


lFossi1    Fuels:     Commercializing        Clean   Coal Technologies         (GAO/RCED-
89-80,    Mar. 29,    1989).
                                             7
process.)       We also pointed      out in that report,    and our April  1902
testimony     before the Subcommittee        on Energy and Power, House
Committee on Energy and Commerce, that delays were being
experienced      in getting    projects    underway once agreements were
finalized.2        We stated that DOE had extended the completion         dates
for two projects        and expected to extend other projects       that were
behind schedule.         These extensions     could delay the commercial
availability       of these technologies.        In fact, two of the funded
projects     dropped out of the program in June 1989 and January 1990
because of financing        problems.

       We just       issued a report        on the selection        of round-two       projects
in which we raised two important                 issues.3      One was that many of the
projects       are to demonstrate         technologies      whose potential         to reduce
nationwide        emissions     when used at existing          coal-burning       facilities
was rated "weak" by DOE's evaluation                   board.      The other centered          on
the need to focus the remaining                $1 billion      that has already           been
appropriated         for the final      two rounds of the program on the more
promising       technologies.        Given the current          status of the projects
in the program,, and in view of the nation's                     current     budget
constraints,         we suggested that the Congress may want to have DOE
delay selecting          projects    for rounds four and five of the program
until    it obtains       additional      demonstration       results    from projects
already      in the program.         This would allow DOE to target               the
remaining        funds to the more promising            technologies        and help ensure
that program funds are used effectively                    and efficiently.

        According  to industry         officials.,  two other issues are also
affecting     the demonstration          of clean coal technologies--cost
recovery     and EPA emission         requirements.    The cost recovery  issue

2Status of DOE-Funded Clean              Coal Technology        Projects      (GAO/T-RCED-
89-25, Apr. 13, 1989).
3Fossil Fuels:   Pace and Focus of the Clean Coal Technology                            Program
Need to Be Assessed (GAO/RCED-90-67,  Mar. 19, 1990).

                                               8
centers     on whether states     will    allow utilities       that elect to
participate      in the development       of clean coal technologies          to
recover the cost associated           with demonstrating        the technologies at
their    power-generating    plants.        Only a few states have developed
specific     incentives   to allow utilities        to recover demonstration
costs.      For example, Florida       and Ohio have devised programs to
allow for an accelerated         recovery      of demonstration      costs.

         Regarding      EPh's emission        requirements,      units that are
substantially        refurbished        are held to the same stringent                  emission
standards       as newly constructed            units.     The industry         is concerned
that EPA may require             units that are modified           to demonstrate           clean
coal technologies           to meet the more st ingent             emission        standards.
Although       EPA has granted         an exemption      for one power plant             unit
demonstrating        a clean coal technology              and has indicated           that it
will     continue    to consider         such exempt ons (on a case-by-case
basis),      the industry        is concerned that the units will                  be subjected
to the more stringent              standards      after  the demonstration            ends, even
 if the technology          is removed.         According    to DOE and the utility
 industry,      such a requirement           could discourage        utilities        from
participating         in the Clean Coal Technology              program.          For example,
 in June 1989, one project               sponsor and DOE mutually              agreed to halt a
planned demonstration              project,     in part,    because a potential             host
 utility     would not commit itself              to the project       in view of the
 regulatory       uncertainties.

WIDESPREAD DEPLOYMENT MAY TAKE 5 TO 10
YEARS AFTER TECHNOLOGIES ARE PROVEN

        According     to industry       estimates,       it may take 5 to 10 years for
the   technologies      to penetrate         the market once they are demonstrated
and available       for commercial          order.     This time   span is needed for
utilities      to develop      confidence        in the new technologies       and to
provide     the lead time for ordering,               designing,   manufacturing,
obtaining,       and installing       the technologies.          Even when commercially
                                              9
available,     utilities       are apt to move cautiously         in applying    these
new technologies.           For example,     industry   officials    have indicated
that a utility         will  likely    test the performance       of a successfully
demonstrated       technology       on a single    unit before installing      it on
other units.

        Utilities          are also concerned about whether they will                             be
allowed       to recover their             investment        costs in installing               new
technologies           once they are commercially                   available.           According     to
industry        officials,        a utility's          decision      to invest         in a clean coal
technology          would need to satisfy                the same criteria             as any other
investment          in the generating             plant.      Furthermore,           such investment
would need to be a prudent and cost-effective                                 decision       for the
public      utility        commission        to authorize         a utility        to recover the
cost of bringing              new technologies             on line.       On this point,            I should
note that our survey results                      indicate      that,     next to acid rain
control       legislation,         cost was the most frequently                      cited     factor
that would influence               utilities'          decisions       to adopt clean coal
technologies.              Furthermore,          about 27 percent           of the utilities           with
coal-fired          units indicated            that increased          flexibility         by public
utility       commissions         on cost recovery            would be an incentive                to use
new technologies.

SUMMARY

       Although        emerging clean coal technologies                   can play an
important      role in reducing             emissions      from coal-fired       power plants,
there is a great deal of uncertainty                      as to whether they will              be
commercially         available       and widely deployed           within    the time      frame
needed to meet acid rain control                    legislation       requirements.
Although     utilities         indicated      that they would give much greater
consideration          to using these technologies               if such legislation            is
enacted,     their       decisions      to invest       in the technologies         will      depend
in large part on their               confidence       in how the technologies             will
compare with conventional                 technologies        and other options         in terms
                                                    10
of their    technical    feasibility,    cost effectiveness,     and emission
control    capability.      Their decisions     could also be influenced     by
their   concerns over whether they will          be able to recover their
investment     costs and what emission       standards   the technologies    will
be required     to meet.

      Because     of the anticipated   time     frames needed for
demonstration      and deployment,   emerging clean coal technologies           may
play only a limited       role in reducing      acid rain during      the next 15
years.     But once they are commercially          available    and widely
deployed,     they could contribute     significantly        to combating  this
problem.

                                     -   -    -   -


      This concludes  my prepared  statement.   We would be pleased                 to
respond to any questions    you or Members of the Subcommittee   may
have.




                                         11
ATTACHMENT I                                                                      ATTACHMENT I



               SAMPLING METHODOLOGYAND QUESTIONNAIRE SCENARIOS

       Using    probability     sampling      techniques,       we selected      138
utilities     and 480 of the nation's             1,503 fossil-fueled         (coal,    oil,
and gas-fired)        power-generating        units that have at least 75
megawatts     of generating      capacity.         We mailed our questionnaire              to
these utilities        and requested      information        on their    current     plans to
use clean coal technologies            at each of the 480 units.               We also
asked whether the utilities            have considered           what they would do at
these units       if acid rain control          legislation       were enacted.        For
those that had explored          emission       control     options,    we asked whether
they would consider         using clean coal technologies,               conventional
technologies,        or other options       to meet the reduction           requirements
described     in each of our four scenarios.

          We received        responses       from 130 of the 138 utilities                in our
survey,      which provided            information         on 93 percent       of the sampled
generating          units.      Although        some clean coal technologies              can
benefit      oil-      and gas-fired         generating        units,   our survey indicated
that utilities             would be primarily            interested     in the technologies
for their        coal-fired         units.       Of the 480 units         in our survey,       307
 (64 percent)          were coal-fired            units.      We have, therefore,         focused
our testimony            on utilities        with coal-fired          generating     units.     The
responses were analyzed                  to develop estimates           for the universe        of
75-megawatt-and-greater                  coal-fired        generating     units and associated
utilities         from which the sample was drawn.

        Our four hypothetical      acid rain control     scenarios      called  for
reducing    the utility's     systemwide   sulfur  dioxide      and nitrogen    oxide
emissions     by a specified    percentage    below 1980 levels       or to a
specified     level   stated  in pounds per million      British    thermal    units



                                                12
ATTACHMENT I                                                                             ATTACHMENT I

(lbs./MMBtus)--whichever                requirement            would   be less     stringent,      as
shown below.

Table 1.1:        Questionnaire          Scenarios        for     Acid   Rain Control
Requirements
                            Compliance               Emission    reduction            requirementa
Scenario                       date                Sulfur  dioxide                    Nitrogen    oxide
      1                         1997               35%    or to 1.0                   25%      or to 0.6
(near-term                                           lb./MMBtus                           lbs./MMBtus
  moderate)
      2                          1997              75%    or to 0.8                   50%      or to 0.4
(near-term                                           lbs./MMBtus                          lbs./MMBtus
   stringent)
      3                          2004              35%    or to 1.0                   25%      or to 0.6
(long-term                                           lb./MMBtus                           lbs./MMBtus
   moderate)
      4                          2004              75%    or to 0.8                      50%   or to 0.4
(long-term                                           lbs./MMBtus                          lbs./MMBtus
   stringent)
aThe percents         refer to the        extent        that     emissions       would     need to be
reduced below         1980 levels.

       We distributed          our questionnaire             to utilities        several      months
before the current            administration           announced its acid rain control
proposal.         Our scenarios        for sulfur         dioxide     emission       reductions      are
more stringent         than the administration's                  proposal,      which
essentially        would require         utilities        to reduce sulfur          dioxide
emissions       from fossil       fuel-fired         steam-electric         generating        units to
2.5 lbs./MMBtus          after    December 31, 1995, and to 1.2 lbs./MMBtus
after    December 31, 2000.              The administration's             proposal       does not
specify     nitrogen      oxide emission           limits      for generating          units,    but
would require        the Administrator,               EPA, to establish          nitrogen      oxide
emission      rates for utilities'               coal-fired       steam-electric         generating
units to meet after            December 31, 2000.                The administration's
proposal     would also grant a 3-year extension                        (until    Dec. 31, 2003)
                                                   13
ATTACHMENT I                                                     ATTACHMENT I

for generating     units that will      be repowered with a qualifying
clean coal technology       to comply with emission       requirements.    Our
scenario    3 is the closest     to matching     the administration's   proposed
sulfur   dioxide   emission   reduction    requirement.




                                       14