001 R99101
5393
Displacing Oil Power Plants
with Coal; An Economic Analysis
EPA cost estimates indicate that utilities can convert
many oil-fired plants to coal or even replace existing oil
plants with new coal plants and reap economic savings
to their customers while complying with applicable
pollution standards.
f
Table I below-demonstrates that converting to coal is
economical even under the assumption that the plant under-
goes a high cost boiler conversion, and builds a 90%
effective S02 scrubber. The saving in this case is
4.9 mills/kwh. Vvith less stringent control equipment,
which can be applied in many cases under existing state
emissions limitations, the analysis shows an even greater
saving from a coal conversion, in this case 15.0 mills/kwh.
It should be noted that in many cases state emissions
limitations can be met without an S02 scrubber. In those
cases the conversion savings will be even higher than those
described in the attached tables.
Table II illustrates that retiring a modern oil
plant and replacing it with a new coal facility can result
in electricity cost reductions, due to the substantial
differences between the price of coal and oil. The capital
cost estimate for the new coal facility assumes expenditures
for pollution control equipment to meet EPA's New Source
Performance Standards (NSPS), including a 90% effective
SG2 scrubber and a baghouse for particulates. To the
extent that many plants will require less controls,
the advantage of coal-fired plants is greater.
The analysis assumes an oil price of $20 per barrel
and a coal cost of $30 per ton. The results are sensitive
to the price of oil, as illustrated in Table III.
Table IV estimates the capital costs and operating
savings for a 500 megawatt powerplant under the three
conversion assumptions. Each megawatt of capacity costs
$95,000, $470,000 and $740,000 for low cost conversions,
high cost conversions and new coal plants, respectively.
The net present value of the savings per megawatt is $824,000,
$784,000 and $808,000 for the three cases, respectively.
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How the benefits from reduced electricity costs
would accrue to consumers depends upon the regulatory
policies of individual states. Many public service
commissions charge capital expenses at a higher rate
in early years, and less in later years of an investment
rather than charging capital costs evenly over the
life of an investment. (See Table V, which illustrates
two methods for allocating capital expenses to ratepayers
over time.) It is possible that in some cases, coal
conversions will add to electric rates in the early
years, even though consumers benefit over the life
of the investment.
In summary this analysis indicates that the U.S.
can substantially reduce oil dependency while cutting
electric rates and while meeting applicable environmental
standards.
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TABLE I
COMPARISON OF ANNUALIZED COSTS OF AN OIL PLANT CONVERTED
TO COAL VvITH THE OPERATING COSTS OF AN EXISTING OIL PLANT I/
(Mills/Kwh)
(Mid-year 1979$)
Low High
Existing Cost Coal Cost Coal
Oil Conversion 3/ Conversion _4/
Annualized
Capital Costs 5/
Scrubber 0 1.4 2.4
Boiler Conversion 0 .4 1.1
ESP Upgrade 0 .2 .2
2.0 11.3
Fuel Cost 32.2 2/ 13.0 13.0
Operating
and Maintenance .5 2.7 3.5
Total (Mills/Kwh) 32.7 17.7 27.8
_!/ Assumes a 12.5% capital charge, a 20 year amortization period
and a 65% capacity factor.
_2/ Assumes oil cost of $20/bbl and a coal cost of $30 per ton.
_3/ Based on these capital cost estimates:
Scrubber - 50% Control $65/kw
Boiler Conversion 20/kw
ESP Upgrade 10/kw
595/kw
_4/ Based on these capital charge estimates:
Scrubber - 90% control $110/kw
Boiler 350/kw
ESP Upgrade 10/kw
$470/kw
_5/ Capital costs are converted to annualized costs using the
formula:
Capital costs x capital charge/5694
(5694 is the total operating hours per year at
65% capacity factor)
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TABLE II
COMPARISON OF TOTAL ANNUALIZED COSTS OF A NEW COAL PLANT AND
OPERATING COSTS OF AN EXISTING OIL PLANT
(Mills/Kwh)
(Mid-year 1979 $)
Existing Oil New Coal
Annualized
Capital Costs 0 13.0 I/
Fuel Costs 2/ 32.2 13.0
Operating and
Maintenance .5 4.7
32.7 30.7
_!/ Assumes a capital cost for the coal plant of $740/kw
of capacity.
2/ Assumes oil cost of $.20/bbl and coal cost of $30/ton.
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TABLE III
COMPARISON OF ANNUALIZED COSTS OF AN OIL PLANT CONVERTED
TO COAL WITH THE OPERATING COSTS OF AN EXISTING OIL PLANT
AT VARIOUS OIL AND COAL COSTS
High Cost
Existing Coal
Oil Plant Converted Plant
Oil Cost Coal Costs
($/Bbl) Mills/Kwh* ($/ton) Mills/Kwh
$10 16.6 23 24.8
12 19.3 25 25.8
14 23.0 27.6 26.8
16 26.3 30 27.8
18 29.5 32.2 2B.8
20 32.7 34.5 29.8
22 35.4
24 39.2
Based on 5.8 million Btu/Bbl of oil and 23 million Btu/ton
of coal
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TABLE IV
COAL CONVERSION CAPITAL COSTS AND OPERATING SAVINGS
FOR A 500 MEGAWATT PLANT
(Million $)
Annual
Capital Operating
Cost Savings
Low Cost
Conversion I/ $47.5 48.4
High Cost
Conversion I/ 235.0 46.1
New Coal
Plant 2/ 370.0 41.3
Present
of Opera
Savings
412.0
392.0
403.9
I/ Assumes 20 year remaining life on plant.
_2/ Assumes 40 year coal plant life.
V Calculated at>a 10 percent discount rate,
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TABLE V.
COMPARISON OF TWO UTILITY COST
ALLOCATION METHODS FOR A $1000
INVESTMENT WITH A 20 YEAR LIFE1/
fl|50
350
Declining Rate Method
Ir tere
D«prec
nn
st
la
ja
ti
on
Le
:ity
Charge
f ,'Z 5 H- 5" L 7 ? 1 (0 II IZ 13 |M 15 It, H 13 |1 20
I/ Assumes 10%
Tnterest rate.
Level Rate Method
Annual Electricity Charge
Capital Repayment
/ i 3.
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