Financial Sense "NIMBT" by Elliott H. Gue 10/14/2006

Last night around 9:30, the power went out in my neighborhood in Alexandria, Va. This wasn't terribly surprising, given the fact the power company had been working on the street adjacent to my condominium complex; the lights had already flickered on several occasions that evening.

Within minutes of the blackout, I could see flashlights and candles dancing around outside my flat. As the weather was cool, I had the windows and doors open to let in the breeze from the Potomac River. I could hear every word spoken outside.

The common thread of the conversations was that the power outage was unacceptable or, to quote one neighbor, "simply ridiculous." Others complained that the power outage was particularly unacceptable, given the current high cost of electricity. For the record, the power was out for about 45 minutes.

This isn't particularly remarkable. After all, I don't know of anyone who enjoys or looks forward to power outages and fewer still who enjoy paying their electric bills. But what I find truly remarkable is that, for the past six weeks, I've been receiving notices tacked on my door about various "community meetings" concerning a nuisance lawsuit that the city recently took up.

The lawsuit is just the latest in a series of campaigns against a 482-megawatt, coal-fired power plant located roughly one and a half blocks away. The plant, known as the Potomac River Generating Facility, is owned by Mirant Corp (NYSE: MIR).

The vast majority of these notices are seeking to find some legal means to shut down this coal plant. It seems that the plant has, at one point or another, been blamed for everything from a layer of dust on cars parked in the area to causing cancer. Although I have no numbers to actually back this up, conversations I've had with local residents suggest opposition to the plant is widespread.

Actually, this small power plant, built in the 1940s, has been the subject of a near-constant debate in the city of Alexandria for at least the past decade. Long-time residents may find that rather ironic, given the fact that the plant was built long before the neighborhood and the city practically begged to have it built there 60 years ago.

It strikes me that there's a fundamental inconsistency at work here. Most area residents can't stand to be without reliable power; even a short outage is considered unacceptable. Yet those same residents can't accept a power plant located anywhere near their residence.

I'm not trying to pick on my neighbors or my neighborhood; Alexandria is a truly wonderful place to live and, as a ninth generation resident, I can't imagine living anywhere else in the area. The point is that this very same debate is raging all across the US and, for that matter, all over the world. This is a phenomenon known as NIMBY--Not In My Back Yard.

The simple fact is that producing electricity is a dirty business, at least using current technology. We can't expect to have our cake and eat it, too. If you want electricity, as I do, you must be willing to accept that we need plants to generate that power.

Moreover, power must be transmitted from power plants to consumers for use. Transmitting power causes efficiency loss; some of the energy is actually lost as the power is transported across transmission and distribution lines. The closer a plant is located to its load--the consumers using the power--the more efficient the process.

Thus, we don't just need power plants; we need plants located near or in the cities in which most of us live. It's just simple physics.

I've never had any problems with my neighbor, the coal plant. Yes, there's some noise from the trains transporting the coal to the plant and in the plant's general operation. But nearby Reagan National Airport isn't exactly a quiet operation, and I don't know of anyone asking for the airport to be closed down.

Nor have I ever smelled any obnoxious odors emanating from the plant. The Blue Plains sewage treatment plant across the Potomac River may be a more obvious source of the odors some complain about. Moreover, I own a red car that tends to show dirt rather easily; I've never see a layer of black coal dust on the car.

When I recently had the opportunity to tour the plant, I jumped at the chance. I would certainly encourage any readers who live near this plant or another similar facility to arrange for a similar tour. Many plants offer such events.

Some steps the facility has been taking to improve their environmental impact were particularly interesting. Specifically, this plant uses low-sulphur coal--coal with less than 1 percent sulphur content.

In addition, Mirant has added a novel trona injection system to the plant; trona is a mineral that, in powder form, bonds with sulphur dioxide. Use of trona and low-sulphur coal has allowed Mirant to reduce sulphur-dioxide emissions by more than half since 2005.

Mirant also uses a binding agent sprayed on the plant's coal piles to help eliminate blown coal dust. And to reduce particulate emissions, Mirant uses some charged plates that actually attract dust and ash that would otherwise fly out of the smokestacks.

I'm under no illusion that burning coal can ever be cleaner than burning gas. But the simple fact is that coal is the cheapest and most readily available fuel in most of the world's prime consuming countries. Check out the chart below.

Source: Energy Information Administration

This pie chart illustrates where the world's electric power comes from. As you can see, the most prevalent fuel globally is coal. Coal accounts for more than half the US electric grid, 40 percent of the global grid and more than 80 percent in a number of developing countries.

The reason for that is simple: Coal is cheap and plentiful. The US, in particular, has the world's largest and highest-quality reserves of coal. Unlike natural gas and oil, the US isn't import dependent when it comes to coal.

Energy-hungry China also has significant domestic reserves of coal. For these simple reasons, King Coal will not lose its position of primacy anytime in the near future.

Coal does have its drawbacks. Chief among them: It's dirty in comparison to natural gas. Coal releases a number of pollutants into the atmosphere; three of the most damaging and important are sulphur oxides (SOX), nitrogen oxides (NOX) and mercury.

Sulphur dioxide is behind acid rain and has been linked to respiratory illnesses. Nitrogen dioxide can also cause respiratory illness in low concentrations and is a contributor in the formation of smog. Mercury can cause birth defects in high concentrations.

Even worse, mercury can accumulate in the flesh of fish; when eaten, these fish can cause health problems. Plants in the US have devised important pollution control measures, such as Mirant's trona injection system, to help combat some of these dangerous emissions

In China, a new coal plant opens in the nation roughly once every two weeks. Many of these plants aren't equipped with the advanced scrubbers used in the US and other developed countries.

In addition, modern plants in the West create higher pressure and temperature in their boilers, increasing efficiency by as much as 50 percent. Heavy reliance on less-efficient coal plants is taking a toll: Of the 10 most polluted cities in the world, seven are located in China.

Still, more-advanced coal plant designs are being tested. One of the more interesting designs is what's known as Integrated Gasification Combined Cycle (IGCC) plants.

These plants convert coal to syngas--a synthetic gas not unlike natural gas--and burn that syngas. Additionally, because the process of making syngas creates heat, that heat is used to make steam and produce even more power.

Because much of this process is done in an enclosed space, it's easier to remove the sulphur nitrous oxides and other pollutants. Duke Energy (NYSE: DUK) is building a 680-megawatt IGCC plant in Indiana, and initial test results are quite promising.

In addition, coal-to-liquids technology (CTL) also holds promise. This involves converting coal into a diesel-like fuel using a chemical process known as Fischer-Tropsch (FT). At current petrol prices, it's economical. Even better, it's a proven technology that's been used in South Africa for decades.

Finally, long-time readers are aware that I'm a big proponent of nuclear power. Unlike coal power, nuclear energy is clean and has little environmental impact. Using current technologies, it's also extraordinarily cheap even when you factor in the high costs of plant construction. (See the August 4 issue of The Energy Letter for more on nuclear power.)

Sadly, nuclear power has, for many years, been the world's most-egregious victim of NIMBY, mainly because of an erroneous belief that nuclear power is dangerous. I'd venture to say that the residents complaining most vehemently about the emissions from my local plant would be even more steadfast in opposing a nuclear plant in the same area.

Only recently has opposition to new nuclear power plants has begun to dissolve, but it will still be years before new plants are constructed and put online in the US.

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