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The Case for Clean Coal

Can the Middle East be one of the first regions to adopt clean coal?

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Utico will source coal from Indonesia.
Utico will source coal from Indonesia.

The mere mention of clean coal seems to raise the hackles of those who believe the notion to be a contradiction in terms, a marketing trick designed to spruce up the image of the most polluting of hydrocarbons.

While coal has long had a bad reputation, the threat of climate change has blackened its name even further. And the issue has been brought even more sharply into focus by the Obama administration in the US, which last month proposed new legislation designed to tackle carbon emissions.

Coal currently provides around 40% of world electricity demand and its use is on the up, due to a combination of low cost, plentiful supply and stratospheric global economic growth led by developing world giants India and China.

Broadly speaking, clean coal refers to any technology that significantly reduces the carbon output of a coal-fired power generation plant. A number of technologies exist or are in development, but as yet there are few commercially operating clean coal power generation plants in the world due to their cost making them unviable.

Within the GCC there is not a single coal-fired power plant in operation thanks to the abundance in the region of oil and gas reserves. Yet the past few years have seen the emergence of proposals for two clean coal power projects in the UAE.

Utico, a subsidiary of local industrial group Ghantoot, is developing a 270 MW clean coal power plant in Ras Al Khaimah (RAK), while in Dubai DEWA has pledged to meet around 12% of its power demand by 2030 through a 1,200 MW plant.

The move towards cheaper coal-fired power generation in RAK and Dubai is, in large part, driven by the lack of indigenous oil and gas reserves and the falling cost of coal on the international market. It is highly unlikely that resource rich Abu Dhabi or Saudi Arabia, for example, would ever turn to coal.

But is it really possible that a region without any coal-fired power generation whatsoever could be among the first in the world to adopt this technology? And if successful, could it provide a blueprint for more projects elsewhere in the region?

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The commercial case
Richard Menezes, managing director of independent company Utico, believes his company has found the key to unlocking the power of clean coal in RAK thanks to a unique combination of circumstances.

The company has teamed up with Shanghai Electric to develop a power plant that will use carbon capture and storage to reduce emissions. The schedule for the $500mn project, which will burn Indonesian coal, has slipped by around six months due to regulatory and permit issues but is set for commercial start-up by December 2016, says Menezes.

Carbon capture technology has long been proven but the cost of using it means that nobody has been able to make it work until now, he says. The key to making this project viable is that Utico will sell the captured carbon.

“Anybody can make clean coal if buyers are willing to pay twice the price for the power,” says Menezes.

“If you capture the CO2 then how do you sell power that is viable? The cost of the power is the point, not the technology.

“Carbon capture technology has been well established in refineries and oil fields but not in power plants because of the cost of capturing the CO2. In Norway, for example, oil companies capture carbon and dispose of it underground to avoid a carbon tax.

“Under our business model the CO2 has a commercial value. To have that commercial value it needs a certain purity and the industrial grade of our product will be 96.5%. Our 270 MW plant will produce 1.1 million tonnes of CO2 per year and we will capture around 600,000 tonnes making it as clean as a gas-fired power plant.

“The demand for CO2 in the whole of the MENA region is not more than around 500-600,000 tonnes per year. The main use of it is for oil production. One tonne of CO2 can be used to produce two barrels of oil when re-injected into depleted fields.

“At today’s prices two barrels of oil costs over $200 so you can sell one tonne of CO2 at $120 and the oil company still gets a return.” So why hasn’t anyone done this before? “Because nobody could make the commercial case for the CO2. We got lucky because we are in the right location, the size is right and we’ve got the right partners. It took a few years but eventually all the pieces of the puzzle fit together.”

Sold out
Menezes says Utico has sold the entire carbon output of the power plant to a customer in Oman where around 35% of oil fields are depleted. “We signed up with the largest CO2 producer in the Middle East called MHD from Oman,” he says. “They produce around 120,000 tonnes of CO2 per year and they want to expand their business and we want to sell our product so it was a natural fit.”

Utico has signed power supply agreements totalling 160 MW with local industrial customers and the company will take the rest of the power for its own use. Its rising power demand means it will need another 100 MW in a few year’s time.

“This project will feed our existing growing consumer base. We have 600 customers who we bill every month. Ras Al Khaimah is a small Emirate but it’s got heavy industries. From cement to glass to steel, it’s got everything. Our model is different from others in the UAE. We are a fully fledged utility. We don’t just produce and supply to others. We own the full value chain.”

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DEWA aiming high
Can this business model be repeated elsewhere and on an even larger scale? Earlier this year Dubai Electricity & Water Authority (DEWA) announced a competitive tender process to select a suitable developer or consortium of developers to own 49% and operate an Independent Power Project (IPP) based on clean coal technology.

The plant, with an aggregate capacity of 1,200 MW, will be located at the Saih Shuaib area on the Arabian Gulf coast with the first 600 MW due to be commissioned before the summer of 2020. DEWA will purchase the power output under a long-term Power Purchase Agreement (PPA).

Interested parties, which have experience of undertaking similar projects, were invited to submit Expressions of Interest (EOI) by 24 April 2014.

The project is part of Dubai’s Integrated Energy Strategy to source 12% of its power needs from clean coal by 2030. Under the plan, natural gas will provide 71%, nuclear 12% and 5% will come from solar power projects.

The clean coal project is significant, not just because of its choice of feedstock, for which there are no existing supply arrangements or infrastructure, but because this is the first IPP to be launched in Dubai since the previous gas fired Hassyan project was suspended late into procurement in April 2012 following a revised assessment of demand forecasts.

To date Dubai has used a traditional EPC procurement route for its power plants, in contrast to its neighbour Abu Dhabi which has been running an IW/PP program for a number of years.

DEWA initially indicated coal gasification as its preferred clean coal technology but is exploring alternatives due to the high cost of producing the power, Menezes says.

“DEWA wanted to go for coal gasification but that costs twice the price of any comparable form of heat generation in the world so they would not be able to meet the end objective of producing economical power. The purpose of gasification is just to make coal clean without a commercial sense to it. Whereas with our model you are capturing it and you’ve got a commercial product.”

However Menezes is uncertain the market is there to repeat Utico’s model on a larger scale. “A 1,200 MW power plant will produce around 5 million tonnes per year of carbon. In order to become clean they will have to capture around 2.5 million tonnes per year, which is around 7,000 tonnes per day.

“You would need to sell the carbon to somebody who can produce around 14,000 barrels of oil per day. Then there’s the cost of the logistics because 7,000 tonnes cannot be transported by road going tankers. You would need ships. Whereas for us, producing around 2,500 tonnes per day needs only 60 trucks per day to move the CO2 to anywhere within a radius of 1,500 kilometres.

“It [our model] is repeatable but not everywhere. You have to locate the project in the right place.”

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