Black gold
Coal emerges as a key source for alternative energy

by Brett Lieberman
for Virginia Business
July 2007

There was no escaping the message. A wall of coal, rising glacier-like spilled across a large screen at an Alexandria hotel as a group of speakers talked about the new future of “black gold.”

“You have to have coal,” opined Fred Palmer, a senior vice president for St. Louis-based Peabody Energy, the world’s largest private-sector coal company. “It’s always being argued about, but it’s the lifeblood of the economy,” Palmer told energy industry representatives, governors and state officials at the recent American Energy Security Summit.

Coal is making a comeback. Helped by high gasoline prices and new research, it is moving to the forefront as a cleaner-burning fuel and a source for alternative fuel.

That’s good news for Virginia. While the United States sits on an estimated 250-year supply of coal, Virginia has 30 to 50 years worth of minable black rock. “We have the resources to make coal the feedstock for our future,” says Brett Harvey, president and chief of Pittsburgh-based CONSOL Energy and a member of the Virginia Coalfield Development Authority. “We just need to capitalize on it.”

Coal-fired plants produce about 52 percent of the nation’s electricity. That percentage is expected to rise to 57 percent as new power plants come on line to meet rising energy demands.

Newer coal-fired power plants burn cleaner and use scrubbers and filters capable of capturing more sooty emission than older plants. The electric re-regulation bill approved this year by the Virginia General Assembly includes incentives for utilities that construct cleaner-burning coal power plants. For instance, they can earn a 2 percentage point greater return on their investments.

But the real excitement over coal these days is that it can be turned into substitutes for imported oil and natural gas. Researchers at places such as the Virginia Center for Coal and Energy Research are looking at other ways to extract energy from coal. “We’re moving away from looking at a lump of coal only to provide kilowatt hours,” says Michael Karmis, who heads the center located on the Virginia Tech campus.

Plans for two dozen major coal-to-liquid projects are under way, including a $10 million one Peabody Energy is developing in conjunction with Rentech Inc. in Illinois. In states including West Virginia, Pennsylvania, and Indiana, these plants would turn coal into liquid fuels such as diesel or jet fuel. Liquefaction processes aren’t new. The technology was used by Nazi Germany during World War II and by South Africa during the apartheid era when international embargoes cut off traditional oil supplies to these countries. Today, coal-rich countries such as China are developing liquefaction programs as well.

The technique involves subjecting coal to high temperatures and pressure to produce a synthetic gas. The gas then is refined into a cleaner-burning diesel or jet fuel. Following a big lobbying push from the coal industry, lawmakers from coal states are seeking federal subsidies to build coal-to-liquid plants. But environmentalists have raised red flags, because the plants produce high levels of greenhouse gases tied to global warming.

At least a handful of the liquefaction projects are nearly ready to break ground. None is in Virginia. The state hasn’t been much of a player because of the high quality of its coal. The high energy and low sulfur content of Virginia coal makes it ideal for electricity generation but expensive for liquefaction.

“Our coal quality is so good that it has a lot of value … the question is going to be where is the best value for Virginia’s coal,” says Stephen Walz, senior energy policy adviser to Gov. Timothy M. Kaine.

While liquefied coal burns cleaner than coal used for producing electricity, the process used to make it still generates plenty of pollutants, especially high levels of carbon dioxide. Researchers are confident some form of sequestration for carbon dioxide will be developed. U.S. Sen. James Webb, D-Va., has co-sponsored legislation to support carbon sequestration research, and most of the presidential candidates support clean-coal technology.

However, private investors are leery of becoming involved. They worry the plants would become stranded liabilities if global political pressures ease and oil prices drop to around $30 a barrel.

Rep. Rick Boucher, D-9th, whose Southwest Virginia district includes many coal mines, hopes to move legislation through the House this summer that would encourage the development of coal-to-liquid plants. Under Boucher’s plan the government would provide loans to liquefaction plant operators if oil prices dropped below about $35 a barrel, the threshold where proponents say the technology is cost competitive. If oil prices increased to above $80 a barrel, plant operators who receive subsidies would make a payment to the government. “The goal is to give stability to the market and remove the financial uncertainty,” says Boucher, who chairs the House Energy and Air Quality Subcommittee.