NRG Energy Cleans Up on Coal

on August 31, 2012 at 8:30 AM

Decarbonization of the US electric grid is an almost impossible task. But in the absence of climate legislation, the most effective carbon reductions might fall to electric power companies that burn a lot of the black stuff, rather than Congress.

NRG Energy has 7.3GW capacity in coal assets and 11.1GW in natural gas. But those figures are dramatically reversed in generation: 48TWh (66%) comes from coal and 14TWh (20%) from natural gas. The Princeton-based company could double those figures pending its $1.7 billion acquisition of GenOn, which would bring its fleet to 46GW and make it the largest independent power generation company in the US.

Unlike other companies, such as Duke Energy, which dispatches its coal fleet when the price of natural gas tips above $4.25 per mmbtu, NRG relies heavily on its coal fleet for baseload power partly because of the company’s regional spread: California, the North East and Texas where coal remains competitive with gas due to the low price of Powder River Coal (PRB) and lignite coal burned in the state.

In an exclusive interview with Breaking Energy, chief executive, David Crane, explained how the company is managing its transition to less polluting generation, low natural gas prices and its struggling carbon capture storage project.

“I don’t want anyone thinking NRG is a pure green company,” he said. “We own a lot of coal-fired power plants, we’ve spent billions of dollars cleaning up our coal-fired power plants to make them emit as little as possible.”

In its latest sustainability report, NRG cites two important reduction metrics; it has reduced its carbon emissions by 29% since 2000 – a decrease partially explained by the recession, a downwards trajectory that has been choppy thanks to additional power plants and high demand in Texas last summer.

But the company has been challenged with slower reductions in carbon intensity – 4% since 2000. It has also initiated voluntarily mercury reductions at coal plants in Louisiana and Texas and completed installation of air quality controls at Indian River, Delaware.

Nuclear doesn’t make any economic sense in a world where natural gas is $3 per mmbtu,” – Crane

Since 1999, NRG spent more than $750 million on new emission controls at its 3,665MW combined coal and gas WA Parish power station near Houston, Texas. But some Environmental Protection Agency regulations have already made some coal generation uneconomic.

NRG has already retired its Somerset plant in Massachusetts and Indian River units 1 and 2, with unit 3 due for retirement at the end of this year. The company agreed to install air pollution controls at a cost of $360 million on a fourth unit to reduce nitrogen oxide, sulfur dioxide and mercury.

“We have a good sense of how much we will have to retire,” he said. “But we ourselves will be affected very little because we were an early mover and the units that had never made sense to put any backing controls on it we’ve already started negotiating retirement of those.

“Most of our other units we’ve added the full backing controls, so they were going to survive all these environmental regulations anyway.”

Whether such confidence could be extended to GenOn’s fleet is unclear. NRG is reluctant to discuss this potential additional generation as the acquisition is yet to be approved by the shareholders of both companies, FERC, the US Department of Justice, the Public Utility Commission of Texas and the New York Public Service Commission.

There are currently 49GW of coal-fired capacity due for retirement because of Environmental Protection Agency regulations and low natural gas prices, according to the US Energy Information Administration’s Annual Energy Outlook 2012.

Crane said the federal government could better manage this transition through federal energy policy. He said the government could run a “cash for coal clunkers” system, similar to the “cash for clunkers” which got motorists back into the showrooms after the auto-bailout in 2009.

“The coal for clunkers idea is that the US government would define a certain type of coal plant that didn’t have backing controls and was over certain age. The owner of that plant can convert that site to an environmental footprint that’s – equivalent of natural gas or better in GHG emissions and the local utility would be required to buy the power from that plant on some sort of cost plus basis. So zero cost to the federal government but they would be placing an obligation on the local utility.”

Working Within the Existing Model

It would be more efficient and cost effective in the long run for the government to encourage the use of existing transmission infrastructure, he said.

“The local utility and transmission system of the US was designed to have baseload power from where all these coal plants are so it actually benefits system stability, rather than kill all the coal plants and have no power coming from those sites.”

NRG recently announced an additional 75MW gas peaker unit at its WA Parish power station would be brought online two years ahead of schedule and has several permits for new plants in progress.

But Crane warned that it would be a mistake to build all natural gas power plants.

“The rush to build natural gas power plants is the single biggest concern that all of us in the electric industry can agree on,” he said.

Although coal in the US is losing its tight grip on the US electric grid, Crane said that it is unlikely to be entirely removed from its portfolio.

Petra Nova, NRG’s carbon capture and sequestration (CCS)/Enhanced Oil Recovery (EOR) project also at WA Parish, was expected to begin operating in 2015. The pilot project, partly funded by $167 million from the Department of Energy, would use carbon dioxide from the coal units to revitalise mature oil fields in Texas and Louisiana.

But its notice to proceed scheduled by the end of this year is in doubt and NRG will have to assess its feasibility.

“It’s fish or cut bait by the end of 2012,” said Crane.

But the NRG CEO has taken tough decisions before. Last year, NRG abandoned its nuclear project in South Texas after the Fukushima disaster, writing off $331 million. NRG had 1,000 people working on the project at a cost of $20 million a month, Crane estimated previously on Breaking Energy.

Nuclear options in the US were unlikely to open up, he said. “Nuclear doesn’t make any economic sense in a world where natural gas is $3 per mmbtu.

“There’s not much chance of that happening; I don’t know how anyone would rationalize it.
“If we had a national energy policy that would to retire 100GW of coal it would be very easy for the government to come up with a soft landing with 50GW of new nuclear.”

Instead of policy, market forces with historically low natural gas prices were driving dramatic change in the electric power industry, he said.

“Coal states like Pennsylvania are becoming natural gas states as a result of fracking.
“The natural gas industry knows that they’re going to kill coal in the US over time. But the natural gas industry isn’t interested in ‘over time’. They want to kill coal now.

“In the long run, we’re all dead [in coal]. But they need to push the coal plants out of the market over the next two to five years, not over 10 to 20 years. People like us own 50 year old coal plants, and we don’t want to invest money in backing controls on a 50 year old plant.”