Executive Summary

The outlook for coal use in the United States is governed by two major factors, namely, the desirability of using an abundant, low-cost, and secure domestic energy resource and the need to comply with increasingly stringent environmental control requirements. Over the time periods considered in this study (ranging from the present through 2040), the production cost of domestic coal is not expected to increase significantly. In contrast, rises in the cost of domestic natural gas are anticipated because of resource limitations. There are also likely to be significant increases in the price of imported petroleum (EIA, 1994). While continued growth in the use of renewable energy forms is expected, along with a potential resurgence in nuclear power, there will be a powerful economic driving force for major and expanded use of coal over the next several decades, with concomitant pressures to reduce environmental impacts through improved technologies. In addition, in countries of South Asia and the Pacific Rim, notably China, rapid economic growth coupled with substantial indigenous coal supplies will likely contribute significantly to an expected worldwide growth in coal utilization over the next 15 years or more (DOE, 1993a).

In this context the Energy Policy Act of 1992 (EPACT) directs the U.S. Department of Energy (DOE) to establish programs for developing environmentally acceptable coal-based technologies for a broad range of applications, notably electric power generation and the manufacture of liquid and gaseous fuels and nonfuel products, such as carbons and coal-derived chemicals. A number of the coal-related provisions of EPACT emphasize the need to ensure the availability of technologies for commercial use by 2010, reflecting both anticipated requirements for coal-based power generation and a desire to capitalize on earlier federal research and development (R&D) investment. This report of the National Re-



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--> Executive Summary The outlook for coal use in the United States is governed by two major factors, namely, the desirability of using an abundant, low-cost, and secure domestic energy resource and the need to comply with increasingly stringent environmental control requirements. Over the time periods considered in this study (ranging from the present through 2040), the production cost of domestic coal is not expected to increase significantly. In contrast, rises in the cost of domestic natural gas are anticipated because of resource limitations. There are also likely to be significant increases in the price of imported petroleum (EIA, 1994). While continued growth in the use of renewable energy forms is expected, along with a potential resurgence in nuclear power, there will be a powerful economic driving force for major and expanded use of coal over the next several decades, with concomitant pressures to reduce environmental impacts through improved technologies. In addition, in countries of South Asia and the Pacific Rim, notably China, rapid economic growth coupled with substantial indigenous coal supplies will likely contribute significantly to an expected worldwide growth in coal utilization over the next 15 years or more (DOE, 1993a). In this context the Energy Policy Act of 1992 (EPACT) directs the U.S. Department of Energy (DOE) to establish programs for developing environmentally acceptable coal-based technologies for a broad range of applications, notably electric power generation and the manufacture of liquid and gaseous fuels and nonfuel products, such as carbons and coal-derived chemicals. A number of the coal-related provisions of EPACT emphasize the need to ensure the availability of technologies for commercial use by 2010, reflecting both anticipated requirements for coal-based power generation and a desire to capitalize on earlier federal research and development (R&D) investment. This report of the National Re-

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--> search Council's (NRC) Committee on the Strategic Assessment of the U.S. Department of Energy's Coal Program addresses the future role of DOE in research, development, demonstration, and commercial application (RDD&C) programs on coal-based technologies. In particular, the committee was asked to recommend, in broad strategic terms, the emphasis and priorities that DOE ought to consider in updating its coal program and responding to EPACT. The committee's major recommendations are given in this Executive Summary. Detailed conclusions and recommendations regarding DOE's coal program, and its relationship to EPACT, can be found in Chapter 10. Throughout the report, costs are based on utility financing, and fuel higher heating value (HHV) is used as the basis for energy efficiency figures (see Glossary). THE DOE COAL PROGRAM Coal-related activities within DOE currently fall under two main budget categories: Fossil Energy (FE) R&D and the Clean Coal Technology (CCT) program. The CCT program was initiated in 1986 and is scheduled to run through 2004, with the specific objective of demonstrating advanced coal technologies at a large enough scale for the marketplace to judge their commercial potential. All CCT projects involve cost sharing between DOE and industry, with the industrial partners contributing at least 50 percent of the cost of the technology demonstration, as well as playing a major role in project definition and in ensuring eventual commercialization. Five solicitation rounds (CCT-I through CCT-V) have been conducted, resulting in 45 active projects with total funding of $6.9 billion, of which DOE is providing $2.4 billion (34 percent).1 The congressionally mandated CCT program complements the FE R&D program, which has been in existence since the inception of DOE and forms the continuing basis of DOE's coal program. The annual funding level for the FE R&D program, which encompasses oil, natural gas, and coal, has remained relatively constant at the low- to mid-$400 million level for fiscal year (FY) 1992 through FY 1994. However, the oil and natural gas budgets have grown at the expense of the coal budget, which was $167 million in FY 1994, with a proposed reduction to $128 million for FY 1995. However, DOE also has proposed that the natural gas budget for fuel cell and gas turbine activities be increased from $74 million in FY 1994 to $112 million in FY 1995. These two programs are also integral components of advanced coal-based power systems. The FY 1995 budget proposal reflects an overall increase in the FE R&D budget for advanced power generation technologies. The coal portion of the FE R&D program is divided into three major components: Advanced Clean Fuels, Advanced Clean/Efficient Power Systems, and 1   Throughout this report, all costs, prices, and so forth, are given in constant 1992 dollars unless otherwise specified. An exception is DOE budget data, which are quoted in current dollars.

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--> Advanced Research and Technology Development. The Advanced Clean Fuels program aims to develop systems that can produce coal-derived transportation fuels, chemicals, and other products at costs competitive with oil-derived products when petroleum prices reach $25/barrel (bbl) or greater in 1991 dollars. Total funding for this program has decreased significantly in recent years, from $59.6 million in FY 1992 to $40.9 million in FY 1994. The FY 1995 budget request of $20.1 million reflects a proposed further decline in DOE activities in this area. The Advanced Clean/Efficient Power Systems program supports the development of systems based on coal combustion or gasification that will become commercial in different time periods. Program goals for efficiency, levels of emissions, and energy cost to be achieved in 2000, 2005, 2010, and 2015 have been established. Some technologies are funded under the FE coal R&D advanced power systems activity, the FE natural gas R&D program, and the CCT program. For example, subsystem and component testing, environmental and economic studies, and pilot plant tests for pressurized fluidized-bed combustion (PFBC) systems are funded under the FE coal R&D program, while demonstrations of first- and second-generation PFBC systems will be conducted under CCT funding. These systems will employ advanced turbines developed in the natural gas R&D program. The advanced power systems program experienced a funding reduction from $187.1 million in FY 1992 to $97.1 million in FY 1994, but this decline is largely the result of completion of the magnetohydrodynamics proof-of-concept program and transfer of the fuel cells activity from the coal program to the natural gas program in FY 1994. All DOE coal advanced research programs fall within the FE coal R&D budget category, although they are not confined to the Advanced Research and Technology Development program. Advanced research on fuels and power generation is also funded under the Advanced Clean Fuels and Advanced Clean/ Efficient Power Systems budget categories, respectively (see Chapter 9). The advanced research budget for coal declined about 30 percent in real terms between FY 1988 and FY 1994, with a further decrease of approximately 25 percent to $22.4 million proposed for FY 1995. STRATEGIC PLANNING The development of a strategic plan for coal requires an understanding of the factors likely to influence coal use over the time horizon of interest. As a basis for developing a set of strategic planning scenarios, the committee reviewed markets for coal and coal utilization technologies, major coal uses—notably, electric power generation, the availability of competing energy sources, and the impact of existing and likely future environmental regulations affecting coal use. The domestic coal resource base is abundant, constituting over 94 percent of proven U.S. fossil fuel reserves. Coal is not projected to be resource limited in the

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--> time period considered in this study (i.e., through 2040). U.S. coal prices have declined over the past decade, and no rapid price increases are anticipated in the near future. Imports of South American coals, which are competitive with U.S. coals on a delivered price basis in certain locations in the eastern United States, are likely to play a role in keeping domestic prices low. While U.S. coal exports are significant (10 percent of 1992 production of 998 million tons), technology developments within the DOE coal program are not likely to open any major new markets for U.S. coal. In contrast, demands for new and retrofit coal-based electricity generation technologies in developing countries, notably China and in Eastern Europe, represent a potentially large export market for U.S. technology. Nonetheless, the extent of U.S. participation in overseas markets for advanced coal utilization technologies is difficult to forecast, given the competition from overseas companies and the complex political and economic factors governing international trade. The single largest use for coal in the United States is for power generation; electric utilities consumed 87.4 percent of the total 1992 domestic consumption of 892 million tons. However, the demand for new coal-fired power generating capacity in the United States is expected to remain low for the next 10 years. Overcapacity, while declining, still exists in some regions, and low-cost natural gas is more attractive than coal for the addition of peaking capacity since capital costs are lower and the lead time for plant construction is shorter. A resurgence in demand for new coal-based generating capacity is anticipated by 2010, as existing plants reach the end of their useful life and baseload electricity demand increases. Natural gas prices will likely increase by this time, to the point where a return to coal-based technologies is favored. However, increasingly stringent environmental regulations governing emissions of sulfur dioxide (SO2), oxides of nitrogen (NOx), fine-particulate air pollutants, and possibly air toxics from power plants, as well as solid waste issues, will place severe demands on coal-fired power plant performance. Furthermore, concern over the potential impacts of global warming may lead to penalties on carbon dioxide (CO2) emissions from coal combustion, resulting in increased emphasis on high-efficiency for coal-based power generation systems designed to operate through the middle of the twenty-first century. The market for synthetic gaseous and liquid fuels from coal is currently small due to the widespread availability and low-cost of petroleum and natural gas. This situation is expected to persist for the next 15 years, with increases in oil and gas prices unlikely to be large enough to stimulate major investment in processes for the manufacture of synthetic natural gas or liquid fuels from coal (EIA, 1994). However, by the second decade of the twenty-first century this situation may change, as the cost of synthetic fuels is reduced by process and systems advances and as concerns over the supply and price of competing fuels increase. On the basis of the above factors influencing coal use, the committee devel-

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--> oped a set of strategic planning scenarios summarizing requirements for future coal utilization to 2040 (see Chapter 4 and below). DOE's current strategic planning objectives extend through 2010, largely in response to the EPACT requirement to develop commercial technologies by that date. However, coal will continue to be a major source of energy well beyond 2010, with the potential in the longer term for a changing emphasis in coal use in response to resource limitations and increasing prices for competing fuels. The committee recommends that the planning horizon for DOE coal RDD&C programs extend beyond the agency's current planning horizon of 2010. The committee recommends the use of three time periods for strategic planning: near-term (1995-2005), mid-term (2006-2020), and long-term (2021-2040). The main objective of DOE's coal program in all periods should be to provide the basis for technological solutions to likely future demands, in a way that is robust and flexible. The above timeframes correspond to anticipated major trends in coal utilization. In the near-term the scenarios for coal use will resemble today's, with power generation persisting as the dominant market, despite limited demand for new coal-fired baseload generation capacity. The mid-term will likely be a transition period. Power generation will remain the major use of coal, and there will be a significant demand for new baseload capacity using advanced high-efficiency coal technologies to meet increasingly stringent air pollution control and solid waste disposal requirements, plus possible penalties for CO2 emissions. In addition, increasing international oil prices will result in a growth of interest in the production of synthetic transportation fuels from coal, and increases in natural gas prices will stimulate interest in coal gasification. Coproduct systems that manufacture two or more salable products might provide attractive market-entry opportunities for liquid fuels from coal. For example, gasification technology could provide a common basis for both power generation and the production of liquid fuels. In the long-term (beyond 2020) the production of liquid and gaseous fuels from coal will likely become increasingly important. Although coal use for power generation will continue to be significant, increasingly stringent controls on emissions, particularly of greenhouse gases, will impose severe demands on efficiency and emission control systems, stimulating interest in alternative energy sources for power generation. Environmental concerns, including greenhouse issues, will also affect the production of clean fuels from coal. Nonetheless, the demand for these products is expected to grow once gas and petroleum resources dwindle or rise substantially in price. The committee recognizes that planning for the long-term period will necessarily be less well defined and will entail greater uncertainty than near- and mid-term planning. These scenarios suggest a change in future priorities within the DOE coal

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--> program. As a consequence of the widespread availability of natural gas and petroleum, industry R&D on technologies for producing clean fuels from coal is currently very modest in scope, apart from the development of coal gasification technologies for integrated gasification combined-cycle (IGCC) power generation systems. Thus, the committee saw DOE as uniquely able to play a leading role in maintaining and developing technological expertise in fuels production and positioning the United States to respond to potential demands for coal-based fuels in the mid to long-term. The committee recommends that within the DOE coal program there be an increasing emphasis on the production of clean fuels and other carbon-based products over time. A further consequence of the committee's recommendation that the strategic planning scenario be extended beyond 2010 is the need to reassess the role and priorities of DOE's advanced research programs. As noted above, there has been a significant decrease in the advanced research budget since 1988. To some extent, this decline reflects the transition of advanced power generation systems from R&D to demonstration status. However, significant reductions have also occurred in funding for coal liquefaction and other advanced research areas. In the opinion of the committee, the DOE budget reductions for advanced research are not commensurate with the increasing needs for lower-cost, more efficient, and more environmentally acceptable use of coal through the next 50 years and beyond. The decline in DOE activities is all the more serious given the decreasing private sector investment in long-range research on coal-related technologies. The committee recommends that increased resources be devoted to advanced research activities to support DOE's strategic objectives for coal, with emphasis on needs identified for mid- and long-term improvements in efficiency, emissions reduction, and cost for both power generation and fuels production. POWER GENERATION Technology Development Research, development, and demonstration (RD&D) of advanced power generation technologies is conducted under the Advanced Clean/Efficient Power Systems component of the FE coal R&D program. DOE goals for efficiency, emissions, and cost have been established. Efficiencies are projected to rise from current new plant levels of 38 to 42 percent to 60 percent within the next two decades. A number of interim systems are proposed with target efficiencies of 45 to 55 percent. DOE's target for emissions of SO2, NOx, and particulates is one-

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--> tenth the 1979 federal New Source Performance Standards (NSPS) by 2010. An important feature of the DOE plan is to achieve the above efficiency improvements and emissions reductions at an overall cost of electricity generation that is 10 to 20 percent lower than today's coal-fired power plants. In the view of the committee these objectives, while laudatory, may be overly optimistic. In general, advanced technologies tend to perform less well and cost significantly more than originally envisioned as they move from concept to full-scale commercial operation (Merrow et al., 1981). In the case of technologically complex advanced power systems, the objective of achieving high-efficiency and low emissions with a 10 to 20 percent reduction in the cost of electricity may be particularly challenging. A more realistic goal would be to achieve the proposed efficiency improvements at an overall cost comparable to current new coal plants. The committee also notes that many of DOE's emission goals for 2000 to 2010 already can be met with current commercial emissions control technology, which many state and local governments now require. The expected trend toward increasingly stringent environmental regulations could demand emissions levels that are more stringent than the current DOE goals, thereby increasing plant costs. The committee concluded that DOE's power plant emissions goals are insufficiently challenging given the capabilities of current commercial technology and anticipated environmental demands on future coal use. Despite reservations regarding program goals for the cost of electricity and the environmental emissions, the committee noted the important role of DOE's advanced power systems program in stimulating the development of new technologies to meet anticipated electricity demand early in the next century. Participation by DOE in technology development is particularly important given the reluctance of the utility industry to invest heavily in RD&D of advanced coal-based technologies in today's increasingly competitive environment. For the purposes of this study, the committee divided the advanced coal-based power generation technologies under development with DOE funding into three groups, based on target efficiencies and approximate dates for commercial availability: Group 1 technologies—low-emission boiler systems (LEBS), first-generation PFBC systems, and first-generation IGCC systems—have target efficiencies in the range of 40 to 42 percent and should be available around the year 2000. Group 2 technologies—externally fired combined-cycle (EFCC) systems, second-generation PFBC systems, and second-generation IGCC systems—are projected to have efficiencies of approximately 45 percent and to be available no later than 2005. Group 3 technologies—high-performance power system (HIPPS), advanced second-generation PFBC systems, integrated gasification advanced-cycle (IGAC) systems, and integrated gasification fuel cell (IGFC) systems—have projected efficiencies of 50 percent or greater and are expected to be available in the 2010 to 2015 time period.

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--> Given the low projected demand for new coal-fired generating capacity prior to 2005, the U.S. market for Group 1 systems will likely be small. These systems are essentially based on proven components and do not offer an efficiency advantage over state-of-the-art pulverized coal systems. Projected performance and cost enhancements come from improved systems design and integration. There may be opportunities to market these technologies overseas, where demands for new coal-based power generation capacity are greatest. Despite their limited commercial potential, the first-generation PFBC and IGCC systems constitute important steps toward the development of higher-efficiency Group 2 and Group 3 systems. In contrast, the LEBS does not offer comparable growth potential, since it employs a simple steam (Rankine) cycle, whereas all of the Group 2 and Group 3 systems use combined-cycles with potentially higher efficiencies. The committee recommends that future investment of DOE resources in first-generation systems be based on realistic market expectations and value as an entry into new technology with high growth potential. At least 50 percent industry cost sharing should be required to demonstrate private sector confidence in these technologies. Group 2 and Group 3 power generation systems depend on the successful development of several critical components, including high-temperature gas turbines, high-temperature heat exchangers, advanced high-temperature furnaces, fuel cells, hot gas cleanup technology, and high-efficiency gasification. The riskiest components appear to be the high-temperature ceramic heat exchanger required for the externally fired combined-cycle system and the hot gas cleanup systems required for advanced PFBC and needed for maximum-efficiency IGCC and IGFC systems. The 1370 °C to 1430 °C (2500 °F to 2600 °F) gas turbine required for Group 3 systems is within the state of the art for aviation systems but requires further development, demonstration, and testing for power generation applications. Fuel cells hold significant promise for efficiency advantages, but their high cost may be a barrier to widespread use of IGFC systems. Gas cleanup is necessary to comply with environmental requirements and to protect advanced gas turbines from corrosive impurities, notably chlorine, volatile alkali metals, and particulates. Commercially available cold gas cleanup technology could be used for IGCC and IGFC systems, although this would incur higher costs and an efficiency penalty of approximately 2 percentage points for air-blown second-generation systems. In contrast, advanced PFBC systems require hot gas filtration since cooling the high-temperature, high-pressure combustion products would eliminate the advantages of PFBC. Thus, IGCC is a somewhat less risky technology than PFBC. Environmentally, IGCC has the advantage of producing by-product sulfur or sulfuric acid, whereas the use of limestone or dolomite for in-bed sulfur capture in PFBC systems can as much as

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--> double the amount of solid waste compared with IGCC systems. As suggested above, IGCC is also less risky than indirectly fired cycles (EFCC and HIPPS), which require significant technological development of high-temperature heat exchange components. Gasification-based power generation systems offer the highest efficiencies for advanced systems, with IGFC efficiencies projected by DOE to be about 60 percent. Potential advantages of coal gasification combined-cycle systems include the high efficiencies obtained with a combined-cycle configuration, superior environmental performance, and the capability to replace natural gas combined-cycle systems in existing power plants. Thus, a strong incentive has been established for the development of high-efficiency coal gasification technologies optimized for power generation. The committee notes that gasification is also an important first step in the production of clean gaseous and liquid fuels from coal, as discussed below. Given the high cost of developing advanced power generation systems, the committee does not consider large-scale demonstration of numerous technology options with significant DOE cost sharing to be justified. The committee recommends that second- and third-generation gasification-based systems be given the highest priority for new plant applications. Work on all the advanced systems should focus on acquiring the cost, emissions control, and efficiency information needed to select the most promising systems for further development. The limitations of critical components, such as heat exchangers, turbines, and fuel cells, and the timing and probability of technological success should be taken into account. This process should begin before FY 1996 and should include a rigorous comparative study of the design options. The proposed FY 1995 budget supporting advanced combined-cycle systems in the FE R&D program is $173 million, split between the natural gas program ($113 million for fuel cells and advanced turbines) and the coal program ($60 million for IGCC, PFBC, and indirectly fired cycle [IFC]). In contrast, the proposed FY 1995 budget is $8 million for advanced pulverized coal. Within the coal program, DOE accords the highest funding level proposed for FY 1995 to the gasification combined-cycle systems ($28 million). The Advanced Turbine Systems program, funded under the natural gas component of the FE R&D program, is charged with considering alternative fuels to natural gas, including coal-derived gas. In the opinion of the committee, advanced turbine materials alone will not be capable of resisting the corrosive effects of impurities in coal-derived gas, and a high level of gas cleanup will be needed. While cold gas cleanup can meet the necessary requirements for IGCC systems, hot gas cleanup has the potential for a simpler and lower cost approach and is an important part of the program to achieve DOE's efficiency goals for advanced technologies. Thus, hot gas cleanup is a high-priority area for both the

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--> CCT and the FE coal R&D programs. To date, neither hot gas desulfurization systems nor the more critical hot gas particulate removal systems have achieved the performance or cost requirements for commercial systems. The committee recommends that a critical assessment of hot gas cleanup systems for advanced IGCC and PFBC be undertaken immediately to determine the likely costs and the ability to meet, within the next three to five years, all requirements for future high-temperature (>1260 °C [2300 °F]) turbine operation and environmental acceptability. Commercialization Efforts The increased complexity of advanced power generation systems implies not only that commercialization of new technology will be expensive but also that prudent stepwise scale-up from pilot plant through demonstration to commercial systems is necessary to minimize the technical risk at each stage. Thus, demonstration plants—such as those being constructed and operated under the CCT program—are an important step in establishing a commercially available technology. Given the high cost of advanced technology demonstrations, the committee recognizes the need for DOE cost sharing to promote U.S. technical leadership and competitiveness, particularly in environmental technologies. The majority of the ongoing CCT projects address advanced electric power generation systems and associated high-performance pollution control devices. While most of the demonstrations are not yet complete, the level of private sector support suggests that the programs have generally been thoughtfully chosen. The committee recommends that DOE support of the current Clean Coal Technology program be continued and that the ongoing program be completed. While no further solicitations are planned under the existing CCT program, the FE coal R&D program should continue to cofund demonstrations of selected Group 2 and Group 3 advanced clean coal technologies beyond those currently being demonstrated by the CCT program. When advancing a new technology to commercial maturity, the first-of-a-kind (or pioneer) commercial plant is generally more costly to build than subsequent plants and provides only partial information about operating, maintenance, and cost issues. Between two and five applications of a new technology are generally required for it to be considered mature and commercially demonstrated. The committee concluded that federal cost sharing of the risk differential between pioneer coal-based power plants and commercially available technologies has the potential to accelerate the commercial acceptance of many of the new technologies such that they will be available to meet market needs in the mid-term period (2006-2020).

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--> The committee recommends that an incentive program be developed and implemented that would offset the capital and operating cost risks associated with early commercial applications of technologies previously demonstrated at a commercial scale. CLEAN FUELS FROM COAL Coal gasification is a costly and energy-consuming first step for all advanced coal uses. Current industry and DOE development of gasification systems, notably under the CCT program, focuses on needs for IGCC power generation; significant improvements in efficiency over current commercial systems are possible. In light of the outstanding promise of IGCC systems, as well as the production needs for clean gaseous and liquid fuels, the committee considers gasification to be an important area for R&D. The requirements for gasification systems optimized specifically for power generation can differ from gasification systems suitable for production of marketable industrial gas, synthetic natural gas (SNG), and liquid transportation fuels. For example, air-blown systems with hot gas cleanup—if workable—might be appropriate for isolated power generation facilities, whereas for other uses and coproduct systems a higher level of cleanup is generally required, and dilution by nitrogen is undesirable. The committee considers gasification systems for both power generation and fuels production to be of importance for the DOE coal program, although there is currently little DOE activity on gasifiers aimed at the latter application. Opportunities for improvement are discussed in Chapters 6 and 9, where the committee identified an important role for DOE. The committee recommends that an expanded DOE role be established to ensure the timely availability of the most efficient and economic gasification systems for future uses of coal in power generation and the production of clean gases and liquids. Syngas can be converted by the Fischer-Tropsch process to produce liquid fuels and chemicals (indirect liquefaction), or it can be converted to hydrogen for subsequent reaction with coal to produce clean liquid fuels (direct liquefaction). The thermal efficiencies of direct and indirect liquefaction are estimated to be 60 percent and 50 to 55 percent, respectively. For indirect liquefaction using Eastern bituminous coal and utility financing, 2recent estimates of equivalent crude price fall between $30 and $35/bbl. Use of lower-cost Western coals is projected to reduce this cost by approximately $4/ bbl. Studies of once-through Fischer-Tropsch synthesis with coproduction of 2   Utility financing assumes 25 percent equity and 15 percent internal rate of return. See Chapter 2 and the Glossary for a more complete discussion of financing.

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--> electricity in an advanced IGCC facility indicate an equivalent crude cost reduction of $5 to $7/bbl. For stand-alone direct liquefaction plants, equivalent petroleum prices also are estimated to be in the $30 to $35/bbl range. Use of lower-cost Western coal together with coproduction of electricity and hydrogen for direct liquefaction would further reduce costs. The above estimated costs of coal liquids are substantially lower than the costs presented in an earlier National Research Council study (NRC, 1990). The differences result from a combination of technological advances, higher prices for the low-sulfur and high-hydrogen content of the transportation fuels produced, the economic bases for the estimates, and, in some cases, the higher efficiencies resulting from coproduction with electricity. While the Fischer-Tropsch process is of great current interest to the petroleum industry for use in parts of the world where low-cost natural gas is available, R&D in direct liquefaction is, to an increasing extent, dependent on the DOE program to reach the target price of $25/bbl (1991 dollars; DOE, 1993b). However, a substantial reduction in funding (50 percent) for the DOE liquefaction program has been proposed for FY 1995. Given the historically unpredictable behavior of international oil markets and the current very limited industrial R&D on coal liquids, the committee believes that an important role for the DOE coal program is to maintain and develop U.S. technical expertise in coal liquefaction, thereby establishing the potential to reduce U.S. petroleum imports. The more attractive economics for coal-derived liquids suggested in recent studies are dependent on the substantial premium now paid for diesel and jet fuels with zero aromatic and sulfur content. This premium accounts, in part, for the current international interest in converting natural gas to these products; however, overproduction could reduce the premium and diminish the attractiveness of liquids from coal. While such uncertainties reduce the incentive for large pilot plant and demonstration programs, the committee believes that there is a clear incentive for continued cost reduction through systems studies and research, including the evaluation of innovative concepts for direct liquefaction. Since 10 to 15 years are necessary to complete a development and commercialization program, and since an equivalent crude price in the mid-$20/bbl does not seem unreasonable by 2010, there appears to be an opportunity for an important contribution by DOE to coal liquefaction technology. The committee recommends that DOE's program for coal liquefaction technologies be continued at least at the FY 1994 level, with the goals of decreasing the cost of coal liquids and increasing overall efficiency. Another opportunity lies in the coproduction of coal liquids and electric power. The commercial deployment of IGCC power systems is anticipated in the mid-term period, and opportunities may arise to establish coproduct plants—or

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--> ''coal refineries"—to meet demands for both power generation and fuels. This strategy would reduce the financial risk associated with constructing large stand-alone liquefaction plants, although some increase in the financial risk associated with the power plant may be anticipated. The committee recommends that an assessment of strategies for coproduction of premium liquid fuels with gasification-based power be an important component in planning a program for the introduction of liquid fuels from coal. SYSTEMS ANALYSIS Advanced coal-based systems for the production of electricity, fuels, and other products are characterized by increasing technical complexity and an expanding number of process options. Given the constraints on funding for DOE's coal program, and the high cost of developing and demonstrating advanced systems, the committee noted a need for quantitative assessment of the relative merits of different systems and subsequent choice of options to be pursued. Systems analysis has the potential to assist in such assessments, notably in selection of the most promising designs, optimization of complex process configurations, assessment of performance and cost advantages, process risks and tradeoffs, and targeting of R&D to reduce critical uncertainties. Although DOE has a systems analysis activity spread among headquarters and its Morgantown Energy Technology Center (METC) and its Pittsburgh Energy Technology Center (PETC), the committee concluded that a major shortcoming of the current approach is a lack of systematic methods, assumptions, and design premises within and across the full suite of advanced energy conversion and environmental control processes. The committee recommends an expanded and more prominent role for systems analysis in the development of RDD&C strategies within DOE's coal program. This activity should establish a clearly stated and consistent set of criteria, assumptions, and design premises that can be applied to all technologies in a given category to facilitate rigorous comparisons. Advanced methods of analysis, design, and risk evaluation should be adopted, and extensive interaction with the user community—notably U.S. industry—and active dissemination of major study results and methods should be pursued. One application of the systems analysis activity identified by the committee is a thorough assessment and optimization of gasification systems, taking into account the likely future spectrum of gasification products. Similar assessments are also required for advanced power systems.

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--> EPACT In developing its conclusions and recommendations regarding future emphasis and priorities for DOE's coal program, the committee used a set of strategic planning criteria and scenarios for the near-, mid-, and long-term time periods, as discussed above and elaborated in Chapter 4. A major input to strategic planning is encompassed in the coal-related provisions of EPACT, which list technology areas and actions to be pursued by DOE. In the final part of Chapter 10, the committee's conclusions and recommendations are interpreted in the context of EPACT. The committee's comments on DOE's response to individual coal-related sections of EPACT are summarized in Table 10-4. Priorities are given for DOE activities based on the committee's strategic planning approach, the development status of the technologies, and other industrial and federal programs. For example, if technologies are available commercially, the committee generally recommended low priority for DOE activities. Similarly, if there is extensive R&D in the private sector, the committee recommended that DOE leverage these efforts. The committee concluded that the current DOE coal program is responsive in varying degrees to all the coal-related provisions of EPACT addressed in the study. However, the committee observed that the balance of activities in the current DOE coal program differs from that mandated by EPACT. The committee concluded that the DOE Advanced Clean/Efficient Power Systems program responds to the EPACT sections relating to coal-based power generation and is consistent with projected market demands for new generating capacity in the mid- and long-term periods (2006-2040). In this context the committee endorses DOE's decision to terminate the magnetohydrodynamics proof-of-concept program. Magnetohydrodynamics does not appear to offer significant advantages over other high-efficiency systems, and the next step in development would involve a costly demonstration program with high technical risk. While the committee considered the current CCT program to be an excellent start in the commercialization of advanced power generation technologies, it concluded that prevailing conditions in the power generation industry will necessitate further federal cost-sharing programs to accelerate commercial acceptance of many of these new technologies. The committee's major recommendations pertaining to EPACT Section 1301 (c), subparagraphs c(3), c(4), and c(5) are given above (see "Commercialization Efforts"). In contrast to power generation, the committee concluded that DOE activities in coal liquefaction fall short of EPACT requirements. Given the likely growth in demand for coal-based liquid fuels in the mid- to long-term periods and the decline in industrial liquefaction R&D, the committee considered that the priority accorded DOE liquefaction activities within EPACT is well founded and should be reflected in a revised DOE coal program. The committee recognizes that the decline in DOE support for liquefaction in recent years may be the result

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--> of funding constraints, a decline in international oil prices, and a high priority on shorter-term requirements to develop advanced power generation technologies. Nevertheless, the committee concluded that DOE should redress the balance of its fuel and power generation activities within the coal program to reflect the priorities of EPACT, commensurate with a planning horizon that assumes coal will continue to be a major domestic energy source well beyond 2010. REFERENCES DOE. 1993a. Foreign Markets for U.S. Clean Coal Technologies, Working Draft. December 21. Report to the U.S. Congress by the U.S. Department of Energy, Washington, D.C. DOE. 1993b. Clean Coal Technologies: Research, Development, and Demonstration Program Plan. U.S. Department of Energy, DOE/FE-0284. Washington, D.C.: DOE. EIA. 1994. Annual Energy Outlook 1994. Energy Information Administration, U.S. Department of Energy, DOE/EIA-0383(94). Washington, D.C.: DOE. Merrow, E.W., K.E. Phillips, and C.W. Meyers. 1981. Understanding Cost Growth and Performance Shortfalls in Pioneer Process Plants. Prepared by the Rand Corporation for U.S. Department of Energy, R-2569-DOE. Santa Monica, California: Rand Corporation. NRC. 1990. Fuels to Drive Our Future. Energy Engineering Board, National Research Council. Washington, D.C.: National Academy Press.

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