Exploring the coal option

24 July 2008
Several countries in the region are considering coal as a means to meet soaring demand for power, but it is an option that will require heavy investment.

In a region of the world as rich in oil and gas as the Gulf, choosing coal to generate electricity may seem like a retrograde step. Yet it could be as little as five years before the Gulf develops its first ever coal-fired power plant.

Several countries in the region are considering adding coal-fired generation to their energy mix. It is one way to reduce their dependence on gas for electricity production and at the same time make more gas available to sell at higher international prices on the export market.

Oman is reviewing plans to build its first coal-fired plant at Duqm. Dubai is also considering coal, while at the same time pursuing a 2,000MW integrated gasification combined cycle plant (IGCC) project in partnership with the Chinese government. The technology will allow coal to be gasified and the resultant synthetic gas to be converted into hydrogen.

It recently emerged that Egypt too is considering a proposal to build a 5,000MW coal plant on its Red Sea coast. It would be set within a wider energy park, which would include a coal-handling terminal and storage facilities. The cost of the plant and associated infrastructure will be $6-7bn.

In North Africa, Morocco has experience with coal-fired plants and recently announced plans to develop a 1,320MW independent power project (IPP) at Safi on the west coast of the kingdom between Casablanca and Agadir. The total project cost will be MD20bn ($2.7bn), including MD3bn for clean-coal technology.

The Safi IPP demonstrates the complications associated with building coal-fired power plants. Previous plans to build the facility at Cap Ghir close to Agadir were abandoned over environmental concerns and fears about the impact the plant would have on the local tourism industry.

Adhering to environmental regulations and selecting an appropriate site will be critical to the success of similar projects in the Gulf. The cost of coal-fired power is not limited to the cost of sourcing coal and building the plant itself. Countries that have always used gas or oil to fire power plants will incur additional and significant costs to put coal handling and storage infrastructure in place.

"They have not set up the infrastructure," says Robert Bryniak, CEO of Abu-Dhabi-based Golden Sands Management Consulting. "They need storage areas for coal and there are not many good locations."

Some industry experts are convinced the specificities of coal-fired power will be enough to undermine the region’s plans. "Coal is out of reach," says Sylvain Hijazi, vice-president of global power sales and country president for the Gulf area at France’s Alstom. "They do not have coal so they have to build a port, which is very costly. This has to be 10 kilometres away from the nearest area where people can live."

With a construction period of five years, a coal-fired plant also takes longer to bring on line than a conventional facility, and therefore cannot meet sudden surges in demand for power.

"If new capacity is urgently needed, a coal plant is not the route I would choose," says Brian Ricketts, coal analyst at Geneva-based International Energy Agency. "If experience shows that people go for lower capital costs and if the gas is sitting there, it would be odd to see coal-fired plants in the Middle East."

While coal-fired power plants are more capital intensive than their gas-fired counterparts, the cost of production is potentially lower. Hijazi estimates that the capital investment cost for a coal-fired power plant is two-and-half-times higher than that for a gas-fired facility. Investors will pay $3,000 a kilowatt for a coal plant and $1,200 a kilowatt for a gas plant.

The cost of production is determined largely by the cost of the fuel, and coal prices have soared over the past year. "Prices have grown two to three times," says Ricketts. "It is a phenomenal increase more dramatic than oil."

Still, the cost of feedstock accounts for only one-third of the production cost of electricity in a coal plant. In comparison, feedstock comprises about 80 per cent of the cost of production in a gas-fired plant.

A key step towards ensuring the success of any coal project in the region will be securing the long-term supply of the fuel. The supply of coal is abundant and deposits are well distributed around the world.

"Availability of coal is still not put into question," says Mansour Hamza, managing director for Middle East, Africa and Asia business at German engineering consultant Fichtner. "Reserves worldwide can be used for many decades."

It is not so much the availability of coal that could prove problematic but the ability to secure good quality coal.

"There is coal supply to last 400 years without any real difficulties," says Alistair Smith, head of nuclear services at UK-based PB Power. "More and more will come from China, and they will want to use it themselves and sell what they do not want. There are enough known reserves to last 70 years and we have not really started looking yet."

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