A major new incentive scheme has been launched in the US with the announcement of US$1b in tax credits to promote clean coal power generation and gasification projects. Meanwhile in the state of Indiana, plans are already in hand to build a US$1.5b coal gasification plant.

Nine US companies have been awarded US$1b worth of federal tax incentives to help bring about rapid deployment of advanced coal-based power generation and gasification technologies.

The announcement was made by energy secretary Samuel W Bodman and treasury secretary Henry Paulson at the National Coal Council's recent meeting in Washington DC.

“There is more energy available in US coal than in nearly all of the oil in the world, and these tax credits will help us find ways to use coal in an environmentally sensitive way,” Bodman said. "The combination of government incentives and private sector innovation will harness America's technological strength to ensure clean, secure, affordable, and reliable energy,” he added.

The Energy Policy Act of 2005 (EPAct) authorised the treasury department to provide tax credits as incentives to move advanced technologies to the marketplace. EPAct focuses on clean energy, efficient energy use, energy conservation, and advanced technologies.

Advanced coal technologies face cost, integration and reliability hurdles that must be overcome if they are to be widely deployed. The US department of energy (DOE) believes deployment incentives, such as tax credits, will accelerate the widespread use of these technologies and assist in driving down their overall cost.

The coal technologies fall under two different tax credit programmes: one for qualifying advanced coal projects and another for qualifying gasification projects. Congressional authorisations included a total of US$1.65b in tax credits to spur investment in the advanced clean coal facilities, including US$350 million in tax credits for advanced gasification projects.

Initially, a total of 49 applications were received. DOE analysed the proposed projects for technical and economic feasibility and for consistency with energy policy goals. It then passed along this data to the Internal Revenue Service, who made the tax credit certifications.

The first round of tax incentive winners include:
* Duke Energy, US$133.5m tax credit for its 795MW Edwardsport IGCC bituminous project;
* Tampa Electric, US$133.5m for its 789MW Polk County IGCC bituminous project.
* Mississippi Power Company, US$133.5m for its 700MW Kemper County IGCC lignite project.
* Duke Energy, US$125m for its 1600MW advanced coal modernisation projects in Cleveland and Rutherford counties;
* Eon US, Kentucky Utilities and Louisville Gas and Electric, for their US$125m, 174MW Bedford advanced coal plant.

The recipients of two other tax credits, Carson Hydrogen power for a gasification project in Carson, California, and TX Energy for a gasification project in Longview, Texas, chose not to publish their tax credits.

Eastern coal becomes quality gas

The state of Indiana has taken things a step further with the announcement that a US$1.5b coal gasification plant is to be built there. Several sites in the south-western corner of the state are being considered for the plant, which will be the first in the country to make pipeline quality natural gas from eastern coal.

The plant, which is scheduled to be online in 2011, would create 300 new jobs to mine Indiana coal and 125 permanent jobs at the plant as well as about 1000 construction jobs for four years beginning in 2008.

The project is being developed by Indiana Gasification and will include a methanation process to produce pipeline quality substitute natural gas (SNG), which has an identical molecular structure to that of natural gas. It would produce 40b cubic feet of pipeline quality SNG annually, which is enough to supply 15-20 per cent of Indiana’s residential and commercial gas demand. Its use is projected to save consumers more than US$3.7b over the next 30 years versus the price of conventional natural gas, according to a study by Carnegie-Mellon University faculty.

According to the letter of intent for 30-year supply contracts signed by the utilities, about two-thirds of the SNG produced by the new plant would be purchased by Indiana's three largest gas utilities, Vectren Corporation, NIPSCO (Northern Indiana Public Service Company), and Citizens Gas to help meet residential and commercial gas demand. NIPSCO would purchase the remainder of the gas to fuel electric generation for its service territory to meet seasonal demands.

The plant will use GE Energy's gasification technology that converts hydrocarbon feedstock into synthesis gas, a mixture of hydrogen and carbon monoxide.

Gasification is one of the key technologies used in integrated gasification combined cycle (IGCC). In this project’s application, rather than producing electricity as the primary output, the methanation processes will produce SNG. The plant will operate with extremely low emissions of regulated air pollutants and will isolate carbon dioxide so that it can be captured. The project will work with the Indiana Geological Survey to develop a carbon dioxide sequestration demonstration project.

“GE Energy is proud to be involved in this project. GE gasification technology is well proven, having been used in various applications worldwide since our first installation in 1948. Currently, there are 62 plants - including more than 120 gasification vessels – operating GE's technology,” said Edward Lowe, general manager of gasification for GE Energy.

Indiana Gasification, the project developer and owner, has involved several team members, including E3 Gasification headed by William Rosenberg, former assistant administrator of the US Environmental Protection Agency (EPA) and the Federal Energy Administration, and current senior fellow at the Harvard University Kennedy School of Government; and Johnston Development Company headed by Bennett Johnston, former US senator from Louisiana.

Rosenberg and his colleagues at the Kennedy School's Belfer Centre for Science and International Affairs completed pioneering work in devising a new regulatory construct – the three party covenant – that would permit the financing of large coal gasification plants. Johnston is the former chairman of the senate energy and natural resources committee.

“This investment opens the way to advanced clean technology that will reduce our reliance on imported energy. Extracting clean hydrocarbons from Indiana coal will make it clear that we can compete with the Middle East for future energy supplies,” said Johnston, “and on terms that eliminate the risk of hurricanes and terrorism.”

“We identified Indiana as an ideal location for our state-of-the-art coal gasification facility because of its abundant coal supply, progressive utility regulatory structure, and engaged political leadership that understands the benefits of developing homegrown energy supplies,” added Rosenberg.

According to project leaders, efficient financial engineering is crucial to producing the gas at a low price. The project owner would contribute 20 per cent of the project costs and the remainder would be financed with debt backed by a federal loan guarantee. This structure, along with the long-term contracts to supply coal and purchase the gas should result in a gas price in the US$6 per decatherm range at 2006 prices. That is 22 per cent less than the average price of natural gas delivered to Indiana over the past three years.