Loan guarantees benefit gasification strategy

Washington (Platts)--19Aug2005

Loan guarantees will benefit the national gasification strategy outlined in
the Energy Policy Act of 2005, according to a Carnegie Mellon University
researcher.

Bill Rosenberg, senior research fellow at the John F. Kennedy School of
Government and professor at Carnegie Mellon, spoke Thursday at the California
Energy Commission's workshop on clean-coal technology and electricity imports
in Sacramento. He said that the loan guarantees "change the economics between
integrated gasification combined-cycle and pulverized coal plants." They will
"encourage development of clean-burning gas from the domestic coal supply and
create new forms of energy," Rosenberg said. 

In the 1970s, the US invested in natural gas plants solely based on price
projections, Rosenberg said. "Based on those projections, we then put all our
eggs in one basket. Now [consumers] are paying for that," he said.

Building gasification plants like IGCC is still more expensive than building
conventional coal-fired power plants because the technology is new and
construction and operating uncertainties raise financing costs. But loan
guarantees that cover 80% of the construction costs of these plants would
substantially lower the cost of power, he said. This finance plan could make
clean-coal gasification technology more affordable for companies and utilities
willing to invest and produce affordable synthetic gas at $4 in a $7/mmBtu
natural gas market. 

The New York Mercantile Exchange contract for natural gas for September
delivery at the Henry Hub in Houston closed at $8.92/mmBtu Thursday, down
46cts.

Rosenberg also said that tax credits in the bill are important because they
offer more incentive to invest in new technologies. The energy bill contains
15% and 20% investment tax credits for clean-coal facilities producing
electricity; and a 20% credit for industrial gasification projects.

"California will not be too pleased with [getting energy from] pulverized coal
plants," Rosenberg said. The state will, however, "like buying power from
clean-coal technology sources like IGCC," he said.

He suggested competition for these loan guarantees will be tough because power
companies will have to prove their venture can get to the marketplace and
produce results. If western states, particularly California, want to purchase
clean energy, they need to work fast because only a few of these IGCC plants
are going to be built, he said.

"Projects need to be identified, goals need to be established and [projects]
demonstrate the assured revenue stream to pay for them will be forthcoming.
Early, active involvement, second only to deciding what you want to do, is
very important," Rosenberg said.

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