The Unknown Trillion-Dollar Coal Technology

Andy Obermueller's picture

Monday, June 8, 2009 - 4:27pm

by Andy Obermueller

Coal. If you think coal is dirty and does nothing but emit greenhouse gases and wreak environmental havoc, you're wrong. You've bought the hype. The fact is that, used properly, coal can be used to generate power with ZERO emissions. And the trick behind this technology is so simple, so elegant that you'll be amazed that no one's thought of it until now.

  • Fact: This nation uses 1.2 billion tons of coal a year.
     
  • Fact: The United States has 498 billion tons of coal reserves, enough for 400 years of use.
     
  • Fact:  Some 340,000 megawatts of energy in this country -- enough to power every home and illuminate every streetlight and ball field -- are generated from coal.
  • Fact: If a power company wants to build a new coal-fired plant, it can, but it will bankrupt them.

Where did that last "fact" come from? President Barack Obama. Mr. Obama said it during the campaign. The Commander-in-Chief believes strongly in the need for a "green" economy that's less dependent on fossil fuels and more dependent on renewable energy sources like wind and solar. Congress is debating the Waxman-Markey bill that would institute a system limiting the amount of carbon dioxide that industry could emit as we speak.

Everything They Are Telling You Is Wrong
Now, you're going to think I'm nuts, but coal, that dirty old industrial power source, will prove to be every bit as green as wind or solar power. It's not renewable, but it can be environmentally neutral. A very simple chemical process -- one taught in fourth-grade science class -- proves it. First, let me give you some background.

The American Clean Energy and Security Act of 2009 -- the so-called "cap and trade" bill -- is the most significant piece of environmental legislation in decades. The legislation, currently being studied by several key congressional committees, has huge support and is a crucial element of Mr. Obama's environmental agenda.

Cap-and-trade works like this: The U.S. government sells allowances that give companies the right to create a certain amount of carbon emissions. Companies must buy enough allowances to cover what they emit. If they produce less emissions, then they can sell their leftover permits to another firm. If they run short of allowances, then they have to buy more. That's the "trade." The "cap" is that each year the government sells progressively fewer permits, incrementally lowering the amount of greenhouse gases pumped into the air. The law would cover about 13,000 entities in the United States.

Now there are two things that produce significant CO2 emissions: Cars and coal. Not only is coal plentiful, it's also cheap and easy to move. But the more important thing to keep in mind is this: Power plants cost $2 million per megawatt to build. Replacing 340,0000 MW of power would cost nearly $700 billion. It would also take years. We don't have that kind of time: Cap-and-trade is slated to take effect in 2011. 2011.

The bottom line then, is that our country and scores of other industrialized, power-thirsty nations must continue to use coal. So if coal and cap-and-trade are both the inevitable future -- and they both are -- then there's only one solution...

Industry must find a way to burn coal in a fashion that produces no emissions.

How Coal Plants Work Today -- and How They Will Work Tomorrow
It's worth reviewing how a coal-fired plant works. Basically, the plant burns coal to heat water and create steam. That steam drives a turbine that spins and generates electricity. Now, the two most meaningful advances in coal-fired plants have been pulverizing coal, which makes it burn more efficiently, and adding technology that reduces particulate emissions so as not to cover the country with fly ash. Neither of these two advances is particularly recent.

Coal-fired plants use "ambient" air. That's a five-dollar way of saying "whatever's outside." Most of the air out there, that is, most of what we breathe and what coal-fired plants burn, is gas nitrogen. In fact, ambient air is 78% nitrogen and about 21% oxygen.

It turns out that all that nitrogen is the problem. When coal is burned using ambient air, the resultant exhaust, called "flue gas," is a bunch of nitrogen byproducts, carbon dioxide and water vapor. The water vapor is easy to siphon off, but the nitrogen and the CO2 are hard to separate.

The key to zero-emission coal is being able to capture a stream of pure carbon dioxide, with no nitrogen byproducts. But that's hard to do when you have to contend with a vast quantity of nitrogen: In fact, flue gas from coal-fired plants is only about 12% CO2. So if you could figure out a way to get the nitrogen out of the smokestack, that would be the ballgame. All that would come out of that product would be pure water vapor and pure carbon dioxide, which are very easy to separate. Once separated, the CO2 could be stored -- tanked for industrial uses, shot into alternative extraction oil wells or otherwise put back into the ground whence it came. And the leftover water? Harmless.

You see, the best way to get nitrogen and its byproducts out of the smokestack is not to burn the stuff at all. So instead of using the ambient air, use pure oxygen. That's what makes fire burn hot. It's an old trick, actually, something welders have been doing for years.

This "oxy-fuel" technology -- firing plants with pure oxygen instead of the ambient air -- means the country can still use cheap, abundant coal to generate power. And best of all, the companies that develop and implement this oxy-fuel technology are going to make a fortune.

We're talking about massive numbers: The United States alone emits 7.1 billion metric tons of CO2 a year, 35% of which comes from coal. That's 2.5 billion tons a year just in this country. Federal statistics show that "while natural gas is the fastest-growing energy source for electricity generation worldwide, coal continues to provide the largest share, by a wide margin, of the energy used for electric power production. In 2005, coal-fired generation accounted for 41% of world electricity supply; in 2030, its share is projected to be 46%."

Of course, this means nothing if the United States is going it alone. But it's not. Here's a little morsel of goodness I ran across in the Wall Street Journal on May 22nd:

     "China, in a new document outlining its stance ahead of December climate   
     talks in Copenhagen, says it wants developed nations to cut their
     greenhouse-gas emissions by at least 40% by 2030 from 1990 levels, a
     significantly more aggressive cut than what is being proposed by the U.S.
     Europe has pledged to cut emissions by at least 20% by 2020 from 1990
     levels, and by 30% if other advanced economies follow suit."

If that's the task, then there's a lot to be done: We have 325,000 megawatts of coal-fired power here in the States. China has 550,000 megawatts. Japan has 40,000, Germany 50,000, Britain 30,000. Each of these plants is going to need to be retrofitted for oxy-fuel technology.

Right now, the technology is pricey: The Department of Energy says it costs $150 per ton of CO2, or up to $0.04 for every kilowatt hour of energy. That's way too much: Such an increase would add +36% to the average $0.11 per kilowatt hour that electricity costs in the United States. But if the owners of the technology could get that price down to a more manageable level, then the world will beat a path to their door. And quickly.

Here at home, there's a piece of that cap-and-trade legislation you need to be aware of. The first section of the bill, "Title I," provides for the support of the development of carbon-capture and sequestration technology. Scientists at the Department of Energy recognized the inevitable future long before I did, and they've helped dozens of researchers work on experiments to find the best carbon capture and storage (CCS) solutions.

Some of the players in the race for discovery have been academic institutions, but the world's major corporations have been the real driving force behind CCS research (their vote counts; they write the checks). These executives' assessment of the potential is the same as serious environmental leaders'. Both groups know that carbon capture is the only way to cut emissions in a meaningful way. The Intergovernmental Panel on Climate Change estimated that CCS can reduce global emissions by up to 55% by 2100.

Many of the companies that are funding this research are large power companies, but the real sign that there is a huge amount of money to be made is that most of the leading supporters of the technology are deep-pocketed private companies. But among the big-money private entities and the closed-door venture capital funds are a select few publicly-traded players with a serious stake in oxy-fuel. I've identified the two companies with the most promise in the current issue of Government-Driving Investing. Follow this link to learn more.

Andy Obermueller does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.