By Valerie Volcovici
MORGANTOWN, W., Virginia (Reuters) - The Environmental Protection Agency is due to unveil next week the first batch of regulations under President Barack Obama's new climate action plan - a carbon emissions-rate standard for new fossil fuel power plants.
If standards are as strict as the industry expects, it could be the death knell for new coal plant construction. The recent bankruptcy of Longview, a highly efficient West Virginia coal plant, is an example of the pressures already facing the industry.
When the Longview plant went into operation in 2011 - the first new coal plant to go online in West Virginia in 18 years - its owners wanted to show that there is a future role for coal in the U.S. energy mix.
Located in Maidsville, 10 miles from the Pennsylvania border in West Virginia's coal heavy northern panhandle, Longview was built to generate electricity cheaply, efficiently and with a smaller carbon footprint than a traditional coal-fired plant.
But on August 30, the 700 megawatt supercritical pulverized coal plant filed for Chapter 11 bankruptcy protection along with its coal supplier, Mepco Holdings. It is in the process of financial restructuring.
Longview's bankruptcy filing cited construction and design issues that led to extended outages as a reason for the bankruptcy. But it also pointed to unfavorable market conditions that made the plant uneconomical.
The bankruptcy "signals that the expense and competitiveness of coal in an environment in which natural gas is very prolific and is at a lower price presents challenges," Republican Congresswoman Shelley Moore Capito told Reuters on the sidelines of a coal industry conference in Martinsburg, West Virginia, this month.
NEW STANDARD ON THE WAY
The bankruptcy highlights the difficulties facing even the most efficient coal-fired power plants in the United States. Those challenges will get even harder when federal regulators unveil emissions standards for new fossil fuel power plants.
The EPA is due to issue an emissions-rate standard for new fossil fuel power plants by September 20. Proposed standards on existing plants will follow in 2014.
Obama asked the EPA to re-propose a rule it introduced last year using a section of the federal Clean Air Act that required all new power plants, including those that use coal, to meet a standard of 1,000 pounds of carbon dioxide per megawatt hour - the rate of an average gas-fired plant.
Sources that have met with the administration in recent weeks said the agency has likely revised its earlier proposal to provide separate standards for natural gas and coal plants, and also raised the emissions limits for coal plants.
Current indications are that the coal limits could range from 1,300 lbs/MWh to 1,600 lbs/MWh, the sources said.
Industry analysts said that unless the EPA sets the standard for coal plants at a rate of at least 1,900 lbs/MWh, there is no way a new coal plant could be built in the United States.
The new rules, like those initially proposed in 2012, are also likely to include a requirement for new coal plants to use a form of carbon capture and storage (CCS), a technology that captures carbon emissions and stores the carbon underground that is years away from being available on a commercial scale.
Only one commercial-scale project is under way in Mississippi, but despite some financial and technical support from the Department of Energy, it has faced major cost overruns.
Plants such as Longview, which experts said was one of the industry's most efficient, have a carbon emissions rate of around 1,900 lbs/MWh, said the American Coalition for Clean Coal Electricity, a coal industry lobbying group, which analyzed emissions rates of about 50 coal plants that have come on line since 2005.
"Longview is having a hard time surviving financially even though it is the most efficient plant around. Under these new regulations, a plant like this couldn't even be built," said James Van Nostrand, director of the Center for Energy and Sustainable Development at West Virginia University.
He said because of its low heat rate and its compliance with other federal emission controls, such as for sulfur dioxide, Longview should have been competitive in the deregulated market it served, a 14-state region that covers an area from Illinois to New Jersey.
Wholesale electricity prices fell significantly since construction began in 2007 after the economic downturn cut demand for electricity and in the face of competition from cheap natural gas prices, according to Longview's bankruptcy filing.
Ann Weeks, legal director of environmental advocacy group the Clean Air Task Force, said her organization has been pushing for the EPA to set an emissions standard as stringent as in the initial proposal since the rule is the hallmark of Obama's climate plan.
"This section (of the Clean Air Act) is meant to be technology-forcing," said Weeks, who argues that a strong emissions standard would accelerate deployment of the carbon capture technology.
But industry groups say that regulation alone is not enough to ensure use of the expensive technology.
"If the technology is not affordable and the regulations are not stringent, nothing will happen. You need incentives," Victor Der, North America operations manager for the Global CCS Institute, said in Washington this week.
Eugene Trisko, a lawyer who represents clients such as the American Coalition for Clean Coal Electricity in energy and environmental matters said CCS cannot be deployed if coal plants, such as Longview, are unable to run.
He said that it makes more sense to enable new and efficient coal plants to run because they are better candidates than old plants to install CCS technology when it is commercially available.
"If you really wanted to advance CCS, you really need to build new coal plants because those are the plants that one day or another would be the laboratories for CCS," he said.
"Nobody is going to put CCS on plants that are 50 years old," he added.
But some environmentalists argue that new EPA rules will only add another layer of financial risk around coal plant investment even in coal-reliant states like West Virginia.
Instead of investing in new coal plants, which will only become more costly, states should diversify their energy supply, said Cathy Kunkel, an energy research consultant and fellow at the Institute for Energy Economics and Financial Analysis.
"Doubling down on coal is not reasonable at this juncture. It doesn't make sense for West Virginia rate payers to foot the bill for a massive investment in coal," she said.
(Reporting by Valerie Volcovici; Editing by Ros Krasny and Kenneth Barry)