coal-fired generation

Are you in? Time is a wasting.....
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Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 12/08/2000
12:40 PM ---------------------------

Shawn Cumberland@ENRON_DEVELOPMENT
12/07/2000 04:13 PM
To: W David Duran@ECT, David W Delainey@ECT, Daniel Reck@ECT
cc:
Subject: coal-fired generation

Soaring natgas prices revive interest in coal
December 07, 2000 3:31:00 PM ET
By Andrew Kelly

HOUSTON, Dec 07 (Reuters) - Soaring prices for natural gas and concerns about
future supplies are prompting U.S. electricity generators to take another
look at coal which had fallen out of favor as gas dominated the nation's
plans for new power plants.

Wisconsin Electric started the ball rolling in September with plans to build
two new 600 megawatt coal-fired power plants, the first to be announced in
the United States in several years.

Richard Grigg, president of the Wisconsin Energy Corp.(WEC) unit, said the
decision was a simple matter of prudence and a way to avoid putting all of
your eggs in one basket.

"We believe that a strong diversity in your fuel mix is a very important part
of having a reliable and low cost electricity supply," Grigg told Reuters in
an interview.

Although coal accounts for just over half of U.S. electricity production, the
economic and environmental advantages of modern gas turbines had made the
decision about how to fuel new power plants something of a no-brainer in
recent years.

Consequently, over 90 percent of new plants currently planned in the United
States are slated to burn natural gas.

But as natural gas prices soar, hitting all-time highs of over $9 per million
British thermal units on the New York Mercantile Exchange this week, Grigg
suspects that other power producers will also take another look at coal.

"Given increasing gas prices and concern for supply availability, I think
you're going to see more people look for ways to utilize coal," Grigg said.

BACK IN THE PICTURE

Griff Jones, vice-president of power trading at Dynegy Inc. (DYN), said high
natural gas prices and recent advances in clean combustion technology had put
coal back in the picture.

"A year or two ago people wouldn't bring up the subject of developing a coal
plant. Today there's talk about it," he said.

For Dynegy, which began as a natural gas marketer and has made the
convergence of the natural gas and electric power businesses an article of
faith, that is quite an admission.

Since the oil price explosions of the 1970s, the share of oil used in U.S.
power generation has dwindled to around 3 percent.

Nuclear plants deliver about 20 percent of the nation's electricity but
construction of new nuclear plants is widely viewed as politically impossible
following the accidents at Three Mile Island in 1979 and at Chernobyl in
1986.

Natural gas currently supplies about 15 percent of U.S. electricity but is
projected to gain market share steadily due to power generators' enthusiasm
for the high efficiency and low emissions of the latest "combined-cycle" gas
turbines.

Oil and gas industry executives often cite projected growth in U.S. demand
for natural gas of 30 trillion cubic feet by 2010, much of it fueled by
increased use of gas for power generation.

Plans for new gas-fired power plants are based on the assumption that the
industry will be able to step up to the plate and deliver ever-increasing
amounts of gas.

FLAT GAS PRODUCTION

In recent years, however, U.S. natural gas production has remained stubbornly
steady around 19 billion cubic feet, augmented by Canadian imports of around
3 billion cubic feet.

The recent surge in gas prices has pushed the number of drilling rigs
currently searching for gas in the United States to unprecedented levels of
over 800 from just over 600 a year ago.

But so far, at least, production remains more or less flat as gas producers
fight the accelerating depletion of mature fields.

Plans for a pipeline that would tap huge unexploited gas reserves in Alaska
will alleviate the supply situation, but the gas would only start flowing in
the second half of this decade.

Coal, on the other hand, is abundant and readily available: the United States
has reserves equivalent to well over 200 years of domestic consumption.

Ray Niles, an analyst with Salomon Smith Barney, estimated in a recent report
that the United States will need 300,000-400,000 megawatts of new electricity
generating capacity over the next decade, or somewhere between 800 and 1,000
new plants.

Natural gas producers would be hard pressed to supply enough fuel for even
half of that new capacity, he calculated.

"Therefore, we think it likely that new coal-fired generating capacity will
also be necessary to meet demand growth," Niles wrote. "We see no alternative
fuel capable of producing the necessary power, due to political and time
constraints."

Wisconsin Electric's Grigg said it might not be long before other power
generators followed his own company's lead and drew up plans for new
coal-fired plants.

"I have heard some rumblings from others that are also recognizing that
economics as well as supply issues are starting to look more favorable for
coal," he said.

, 2000 Reuters