AN OPEN LETTER TO GOVERNOR ERNIE FLETCHER AND SENATOR DAVID WILLIAMS.

Hillbilly Report
Glendale, Kentucky
http://www.hillbillyreport.com/
June 11, 2007
I Just Wanna Say
By Jim Anderson Stivers
There are some more things you and the public should know about alternative energy before you start asking the citizens of the commonwealth to anti up tax forgivement for an industry that is unproven on the scale at which these processing plants would be built.
This is about more market for coal. And I am for that. However, establishing new markets for coal at the expense of more greenhouse gas does not make sense.
Here is what a recent DOE report says:
Investors would thus require incentives in the way of investment tax credits, State and/or Federal Sales tax exemptions, or some form of product price guarantee in order to find the risks acceptable.
Conclusions:
Modification of existing refineries so that they are able to use a combination of coal and low value residual materials in full scale co processing facilities is potentially profitable at today’s oil prices.
Returns on equity of about 15 percent could be realized with conventional 33 percent equity financing if the residual feed to the co processor was half the cost of crude oil and coal was $1 per million Btu. However, because of the high capital investment required, around $600-850 million, the uncertainties about future oil price and supply, and the technical uncertainties inherent in technology not previously proven in a commercial scale, the required modifications would not be bankable propositions for most potential investors.
Smaller scale co processing modifications utilizing a single, half-scale co processing train can reduce the capital requirement to about $370 million for a project supplying hydrogen for both the refinery and the co processing unit. These smaller units suffer from inefficiencies of scale and are thus less profitable than the full scale units giving returns on equity in the range of 5 to 10 percent.
However, the required incentives would generally be less costly than those that have already been provided to stimulate the production and use of other alternatives to imported oil. The successful completion of an incentivised pioneer plant would pave the way for full-scale follow on facilities that would be profitable without incentives. These facilities have the potential of making a substantial contribution to the production of transportation fuel from domestic sources.
Acknowledgment: This work was funded by DOE under contract number DE-AC22-95PC95054.