For various governmental and technical reasons, Hydrogen Energy California LLC is pretty well committed to a blend of 75% coal and 25% petroleum coke as the feedstock for its gasification power project in Kern County, Calif.
In a Feb. 7 filing at the California Energy Commission, as part of a long-running commission review of this project, the company provided more detail about the need for this particular feedstock blend in answer to questions that came up at a Jan. 16 commission hearing.
One big reason for that blend is that HECA is the recipient of a $408m Clean Coal Power Initiative (CCPI) Round 3 grant from the U.S. Department of Energy. The minimum requirement for coal use for the CCPI Round 3 (CCPI-3) grant is 55% coal with the main focus being on carbon capture technologies. However, HECA’s specific Cooperative Agreement with the DOE requires that HECA use coal for at least 75% of the energy input during the Demonstration Phase, which runs for the first two years of operations.
In addition, HECA is the recipient of about $103m in federal Section 48A tax credits. That program requires that qualifying projects use 75% coal for the first five years of operations.
“The choice of 75 percent coal and 25 percent petcoke fuel blend also stems from technological requirements associated with the [Mitsubishi Heavy Industries] MHI gasifier,” the filing added. “The Applicant chose the MHI gasification technology after a thorough review of all commercially viable gasifier technologies. The MHI technology is a newer design and has features that work to reduce capital costs, reduce operations and maintenance costs, improve efficiency, and improve product availability. All of these factors work to lower the cost of the finished products that HECA will produce.”
The company’s 2009 revised Application for Certification (AFC) was based on a different system, which was an entrained flow, slurry-fed, refractory-lined, quench design featuring two operating 900-cubic-foot reactors with a common spare to facilitate maintenance on feed nozzles, refractory, and other wear items. For comparison, the MHI gasifier is a two-stage, dry feed, entrained flow, membrane wall gasifier that employs a synthesis gas (syngas) cooler for steam production. The membrane wall and feed nozzle design in the MHI configuration is expected to provide a longer run time between shutdowns.
MHI gasifier is more complex, but provides economies of scale
A single MHI gasifier is capable of producing 50% more syngas at a level of availability comparable to the original configuration—which required three vessels along with their associated structures, appurtenances, piping, and instrumentation. Although the MHI gasifier is larger and more complex, the project expects to capture economies of scale, reductions in equipment count, and a reduction in the frequency of shutdowns. This translates into lower costs, higher efficiencies and lower emissions.
“The MHI gasifier has the theoretical capability to achieve feedstock flexibility similar to that of the previously proposed General Electric refractory lined gasifier; however, more operating experience is necessary to determine whether this theoretical capability can be fully realized,” the company added. “During the gasification process, ash from coal and petroleum coke (petcoke) is melted, and then cooled by a membrane wall in the MHI design, where it vitrifies to form a protective layer. This protective function is a critical design element of all entrained flow gasifiers, and the melting point, viscosity, and other important properties are very dependent on the ash properties of the feedstock. Petcoke has a much different quantity and composition of ash; demonstration at scale must be incorporated into the experience base of MHI before the full range of feedstock flexibility can be determined and guarantees can be made. This is part of the normal technology deployment/learning cycle, and is consistent with the step-by-step progression that other technologies have followed.”
To date, the maximum performance guarantee the manufacturer has been willing to provide HECA is a 75% coal and 25% petcoke blend. This performance guarantee is required to obtain long-term financing.
The funding of the HECA project will consist of debt and equity obtained from a variety of sources, the company added. In addition to the funding obtained from the CCPI-3 grant provided by the DOE, like virtually all other domestic, industrial-scale projects, HECA will rely upon capital markets to fund a significant portion of the project. In order to attract investors in the market place, a project must clearly demonstrate that it is based upon a solid economic basis and provides returns on equity that will be attractive to investors.
“For a project such as HECA, this is typically achieved by demonstrating to the satisfaction of investors that future cash flows are real and dependable over time,” HECA added. “Although investors review numerous aspects of a project before making the investment decision, a critical step occurs during due diligence where investors review the characteristics of third-party contracts. The reality of this investing environment has been carefully considered throughout the development of the HECA Project and more specifically, influenced the proposed feedstock ratios as detailed in the Amended AFC.”
Prospective investors prefer that major third-party contracts, such as feedstock, are stable and long-term in duration. In general, coal procurement conforms to investor preferences as coal providers seek long term (typically 20+ years) supply contracts enabling them to recoup the high capital outlays associated with mine development. In contrast, petcoke is sold as a commodity product in spot markets. So, from an investor’s perspective, the use of petcoke as a feedstock is less desirable than coal due to a perceived increased risk of supply disruption.
HECA in January told the commission that it is negotiating a contract for coal out of Peabody Energy’s (NYSE: BTU) Lee Ranch and El Segundo strip mines in New Mexico to provide the coal part of the feedstock blend.
In September 2011, SCS Energy California acquired 100% ownership of HECA from BP Alternative Energy North America and Rio Tinto Hydrogen Energy LLC. The syngas from the gasification process will be purified to hydrogen-rich fuel, and used to generate a nominal 300 MW of baseload electricity, with CO2 to be used for enhanced oil recovery in the nearby Elk Hills oilfield.