Rio, BP Plan US$1.7 Bln Australia Clean Coal Plant

Rio, BP Plan US$1.7 Bln Australia Clean Coal Plant

PlanetArk AUSTRALIA

22nd May 2007

SYDNEY - Rio Tinto Ltd. and BP have launched a study for a planned A$2 billion (US$1.7 billion) clean coal power generation project in western Australia, in a bid to cut greenhouse gas emissions ahead of a possible carbon trading regime.

Rio and BP said on Monday the proposed project would be an industrial-scale power generation and carbon storage facility that would generate 500 megawatts of electricity, enough to meet about 15 percent of the power demand of south west Western Australia state.

The plant would also capture four million tonnes a year of carbon dioxide (CO2), blamed for global warming. The plan follows the setting up of a new company, Hydrogen Energy, by the two firms last week.

"If you start from the perspective that the power sector emits 40 percent of CO2 and if you also start from the assumption that fossil fuels will be used for many decades into the future, then this is the only solution," Lewis Gillies, chief executive of Hydrogen Energy, said in a teleconference.

The quest for clean coal technology comes on the heels of a growing carbon debate in Australia -- the world's largest thermal coal exporter -- and reflects concerns that state governments could implement a carbon trading scheme by as early as 2012.

Local media reported on Monday that a government task group would recommend Australia set up a carbon emissions trading system by 2012, including the transportation sector. The system would be finalised at by end of 2010, after which companies would have 18 months to prepare for the transition.

COAL DOMINANT

Australia, which uses coal for about 85 percent of its power generation, already has two other clean-coal power generation projects underway in the eastern states of Queensland and Victoria.

The project would gasify locally produced coal to produce hydrogen and carbon dioxide. The hydrogen would be used to fuel the power station and about 90 percent of the carbon dioxide would be captured and stored beneath the seabed of the Perth basin in western Australia, Rio and BP said.

The world's top two energy consumers, the United States and China, are also pushing ahead with clean coal projects to tap their large domestic reserves, though growing global demand for coal to meet surging power demand is likely to boost emissions.

Lewis said the costs of low-carbon power generation are higher than traditional power generation and the project would need various policy supports, including carbon trading, for it to be economic.

Shares in Rio were up 1.7 percent by 0457 GMT. BP's shares closed 2.02 percent higher at 5.82 pounds on Friday.

The project would be financed by capital funding or through the creation of a carbon price, or a combination of both, Lewis said.

"If there are government grants available then we would welcome the government to be investors in this project. If there are not, but there is a sufficient carbon price to make the economics work with us providing the full capital, then that's an option we would consider as well," he said.

A final investment decision to develop the project could be made in 2011, subject to successful engineering and commercial studies. The plant would come into operation after a three-year construction period, the two companies said.

The joint venture would also consider bringing in a local utility to manage the planned power project, Lewis said.

"In both of our projects in Scotland and California, we actually have local utility partners and that's something we will explore here." (US$1=A$1.21)

Story by Fayen Wong

REUTERS NEWS SERVICE