While President Obama and others speak out about the need to close the carbon loopholes in this country, one newly appointed Governor has taken it upon himself to buck the trend and open up a new one. A carbon loophole based on the ability of a coal plant to remarkably "increase a states renewable energy production".

This past week, the newly appointed Governor of Kansas, Mark Parkinson, used this curious bit of logic as a way to justify his approval of an 895MW supercritical coal plant at Sunflower Electric Power Corporation's Holcomb facility. While wind may also benefit from the new high-voltage transmission lines needed to carry electricity from the plant to customers in Colorado, this project will clearly not live up to its billing as a job creator. 

If Governor Parkinson was motivated to break away from former Governor  Kathleen Sibelius' position on new coal in the state based on the number of permanent jobs created at the facility, it would be a curious decision indeed. According to Sunflower Electric Power Company's press release only 50 permanent jobs will be created at the new Holcomb facility. This works out to  roughly $80mln of investment per job, and doesn't even include the 1) financial risk from higher than expected construction, credit, and fuel costs, 2) regulatory risk from carbon emissions, and 3) demand uncertainty risk from the economic downturn. Risks that could inflate the cost of building this facility by billions of dollars over time.

Given these miserly job numbers, you have to wonder why Governor Parkinson would sign off on a plant that would not only raise local energy prices but turn his state into a carbon dumping ground for its neighbors.

Maybe Governor Parkinson expects the $95mln upfront fee and $25mln a year management fee being paid to Sunflower will actually lower energy costs for in-state consumers. While this sounds plausible, a quick look at the math shows that these fees will not stop the costs of power from this new coal-fired facility from rising. Under the Waxman-Markey climate draft for example, while the Sunflower plant would certainly qualify to participate in the incentive program for capturing their carbon and storing it underground (a process known as carbon capture and storage or CCS), it would not likely receive any transition assistance for its carbon emissions.  

As a result, Sunflower would be subject to pay carbon costs starting at $24mln a year for their 200MW portion of the facility that would escalate to $172mln by 2050 using EPA carbon cost estimates. This would mean that Sunflower's $95mln up front fee and their $25mln annual management fee would be eclipsed by the facilities carbon costs by the year 2021 (see graph below). In terms of costs per kilowatt hour, these carbon costs would translate into an increase of 2 cents per kilowatt hour in the early years, rising to an increase of 14 cents per kilowatt hour by 2050. Costs that will make this facility a poor long-term power investment.

The math improves dramatically, however, if Governor Parkinson requires the Holcomb facility to invest in carbon capture and storage as pre-requisite for getting his approval. Indeed, from a tax revenue perspective the Governor should be actively pursuing this type of investment, given that the plant sits in an ideal location for providing CO2 for use in enhanced oil recovery (EOR). According to the Department of Energy, Kansas has 1.2 billion barrels of stranded oil that can be economically recovered through EOR with CO2. By providing the needed pure stream of CO2 from the Holcomb facility to flush out this stranded oil, an investment in CCS by the Holcomb plant would generate enough tax revenue to justify this project many times over to the people of Kansas.

As it stands, however, when the rising cost of financing a non-capturing coal facility is factored in, the economics of Sunflower's 895MW facility at Holcomb look pretty lousy. Indeed a combination of higher funding costs, regulatory uncertainty with respect to carbon, and future power demand concerns have already sidelined plans for several unmitigated coal plants this year, and judging by the cost estimates of the Sunflower facility the Holcomb plant would be no exception (see table below)*:  

In sum, unless Governor Parkinson mandates that this new coal-fired facility captures its carbon, the decision to approve the Sunflower request to build an 895MW facility is opening up a carbon loophole that his state will be paying for decades into the future. By capturing this faciliites carbon and using it for CO2 EOR, however, the economics change. The state can benefit from the tax revenues from an additional 1.2 billion barrels of oil produced using CO2 EOR, and the climate can be spared from 90% of the facilities 6.6 million tons of annual CO2 output.  CO2 ouput that will carry a meaningful economic cost once climate change legislation has been passed by Congress.

*The cost estimates for the Holcomb facility are based on a study by RW Beck for a similar supercritical coal-fired power plant in Meigs County Ohio. The financing rate for the Holcomb facility has been adjusted by 1% to reflect today's financing challenges