Peabody Mine Survival May Rest on Navajo Coal Gasification Plan

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By Stephen Lee

The biggest coal-fired generating station west of the Mississippi could be replaced by a coal gasification plant, raising concerns among environmentalists as well as questions from financial analysts about the economic costs and risks.

The tribe “has considered the development of potential energy industries, including [a] gasification plant,” Navajo Nation presidential spokesman Mihio Manus told Bloomberg BNA Aug. 3. He added that the tribe hasn’t committed to the technology, which chemically transforms the fossil fuel into synthetic natural gas.

Manus’ remarks echo those of Navajo Nation President Russell Begaye, who indicated to local reporters in early July that the tribe wants to build a coal-to-gas generating station. “We’ll have a new plant there that will take advantage of the price of natural gas, but still use coal,” Begaye told Lake Powell Communications, a local news site in Lake Powell, Ariz.

Begaye did not respond to Bloomberg BNA’s request for an interview.

The Navajo Generating Station, on tribal land near Page, Ariz., provides power to customers in Arizona and Nevada. The plant’s owners—which include the Salt River Project, one of Arizona’s largest utilities, and the Interior Department’s Bureau of Reclamation—have a lease with the Navajo Nation that expires in 2019. That plant will shut down at the end of 2019 unless a new buyer steps forward to keep it running beyond then, a possibility that energy analysts say seems increasingly remote.

Should the gasification plans come to fruition, one beneficiary could be Peabody Energy, which operates the large Kayenta coal mine 78 miles to the southeast that employs many tribal members. Analysts, however, say they’re skeptical a coal gasification plant will be realized because of a range of economic and technological challenges.

Peabody spokeswoman Beth Sutton told Bloomberg BNA in an email that the Navajo’s coal gasification plan “seems speculative.”

The Kayenta coal mine will likely shut down at the end of 2019, because it only serves the massive Navajo Generating Station. Further, no outside rail link can deliver the coal to other customers.

Duke’s and Southern’s Experiences

Two recent stumbles in the coal gasification industry serve to illustrate the economic risk the Navajo Nation would be courting by embracing the technology, said David Schlissel, director of resource planning analysis at the Institute for Energy Economics and Financial Analysis.

Duke Energy’s Edwardsport coal gasification plant in Indiana has cost $1.5 billion more than originally planned and still doesn’t run reliably, Schlissel said. More recently, Mississippi regulators concerned about the rising costs of Southern Co.'s Kemper plant ordered the company last month to transition the plant to natural gas.

“If Duke and Southern Co. couldn’t do it, who is the Navajo Nation going to find who can do it?” Schlissel said. “There’s no evidence that this can be done economically or reliably.”

A coal gasification plant would generate power at roughly $100 per megawatt hour, but the Navajo Nation would only be able to sell it into the grid in Arizona or Nevada at $30 a megawatt hour, according to Schlissel.

“It doesn’t make sense,” he said. “You’re quickly going to go down.”

‘Costly and Risky’

Similarly, Bill Corcoran, western campaign director for the Sierra Club’s Beyond Coal campaign, told Bloomberg BNA that a “costly and risky coal gasification plant would only aggravate the underwater economics of coal-fueled power in the region. It’s a loser for a tribe that can’t afford a misstep in profiting from the ongoing transition of the energy market.”

The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg, the majority owner of Bloomberg L.P., parent of Bloomberg BNA.

“With natural gas prices at current levels, including the recent uptick, coal gasification can’t be economic,” added Vincent Brisini, director of environmental affairs at investment and management firm Olympus Power. “Too much energy is needed to gasify the coal, plus the price of the coal alone is already two-thirds the cost of natural gas.”

Other options on the table for the Navajo Nation include a solar farm and the development of thermal energy, Manus said. Indeed, the tribe launched a 27-megawatt solar farm in June. Manus did not respond to questions about why the Navajo Nation was considering coal gasification technology given Southern Co.'s and Duke’s experiences.

Interior Department spokesman Dan DuBray told Bloomberg BNA that he couldn’t weigh in on the coal gasification question, or whether the agency would provide funding to help the tribe get any plans off the ground. Rather, DuBray said, the agency is “focused on helping [Navajo Generating Station] operate beyond 2019.”

The tribe has flirted with coal gasification before. In 2012, for example, the Navajo agreed to work with Lawrence Livermore National Laboratory on developing the technology.

Two years later, the tribe won a $1 million Interior Department grant to study coal gasification’s economic potential.

To contact the reporter on this story: Stephen Lee in Washington at

To contact the editor responsible for this story: Rachael Daigle at

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