Legalectric

GILLETTE — Believers of “advanced coal” processes are fighting to win over the “old coal” investment community, which is under a deluge of information from opponents who say the technology either won’t work in Wyoming, or won’t achieve commercial profitability.

For these reasons, Evergreen Energy Inc.’s Fort Union plant serves as clean coal’s canary in Wyoming, and its start-up in 2006 seems to have yielded mixed results.Although Evergreen — formerly KFx — made several shipments to customers and recorded successful test burns in both the industrial and utility markets, troubles with water handling have prevented the Fort Union plant from achieving full production of 750,000 tons per year.But Evergreen Energy’s K-Fuel process doesn’t just cook 8,300 British thermal heating unit coal into a 11,000 Btu, low-pollution, super-compliant product. It also turns lemons into lemonade, according to CEO Mark Sexton.Sexton said every hitch at the archetype plant results in fine-tuning to create a better K-Fuel blueprint for wide deployment.”We continue to make improvements at the facility there in Gillette,” Sexton said in a recent interview. “Though the plant isn’t running at full capacity today, it continues to operate while we simultaneously make improvements and make changes.”

Listed on Evergreen’s success side this year are tentative agreements to build mine-mouth K-Fuel plants at the Buckskin and Coal Creek mines in the Powder River Basin. Next, Evergreen plans to deploy K-Direct, suited to achieve water and heating efficiencies alongside electrical generators themselves.

The difference between today’s K-Fuel plant and the one that made only a brief appearance in Wyoming 15 years ago is that it operates in a completely different world of market fundamentals. Sexton said financials demand a more efficient product, and environmental concerns demand a cleaner product.

“Demand clearly exceeds our ability to produce the product right now,” Sexton said.

Clean coal debut

Lack of investor enthusiasm forced Clear Energy Solutions to table its hopes for a coal-to-liquids project in Converse County in 2006, yet DKRW Energy LLC made sure-footed strides toward its Medicine Bow coal gasification and liquefaction project in Carbon County. And the state received more than a dozen formal proposals from parties interested in partnering in Wyoming’s first integrated gasification combined cycle plant.

Yet for all the talk, speculation and real work toward finally advancing Wyoming’s primitive shovel-and-ship coal industry to cleaner and more “value-added” processes, only one company actually produced tangible results in Wyoming this year.

Only Evergreen Energy Inc. actually fired up two Lurgi coal gasifiers at its new Fort Union K-Fuel plant here in 2006 after more than 15 arduous years of trying to take the process from laboratory to the commercial market.

The fact that Evergreen secured the millions needed to launch its first K-Fuel plant without any government subsidies was a milestone in and of itself. Martin Malloy, investment analyst with Hibernia Southcoast Capital Inc., said despite encountering water handling troubles, Evergreen seems to have weathered the expensive start-up phase rather well.

“It’s a step in the right direction. They’ve been able to fund the start-up of this plant and still have more than $100 million cash on the balance sheet with minimal debt,” said Malloy, who does have a “buy” rating on Evergreen Energy stock. Hibernia has done investment banking for the company in the past 12 months.

Still, Evergreen’s 2006 start-up didn’t come without missteps that provided naysayers with plenty of fodder. Some customers experienced dusting issues with the product, which resulted in tinkering with a treatment process utilizing molasses to prevent dust-ups in the transportation and handling of the product.

More lemons into lemonade, according to Sexton. Cause for caution, say others.

“The start-up is much slower than anybody expected, about a year longer than expected,” said Phil Dodge, investment analyst for Standford Group Co.

The biggest challenge, by far, is handling the water that’s stripped from the coal. A $2 million reverse osmosis water treatment facility at the plant failed to perform as expected. Only one of the two Lurgi gasifiers is currently in use as the other is refitted with a different water piping regime.

Dodge said having a good deal of cash on the balance sheet buys Evergreen some time to work out the water kinks. Introducing any new fuel product to the market is extremely rough, but Evergreen seems to have a good shot at finding a home in the market.

“It really takes a long while, if not forever, to get one of these (alternative fuels) up and running commercially,” Dodge said. “This is the one that seemed to have the best shot, because the product is a desirable one.”

Regulatory issues

As Evergreen reconfigures an entirely new water handling system, it also must resolve issues with the Wyoming Department of Environmental Quality over alleged illegal dumping of wastewater.

Evergreen is involved in two separate “notices of violation,” which are yet to be resolved. For the most serious — an alleged illegal dumping in the plant’s mine pit — DEQ Director John Corra recommended a $35,000 penalty. Evergreen disputes that alleged violation, and said it fired a contractor involved in a second illegal dumping.

“As a company with a strong environmental theme to our business, we make great efforts to comply with environmental regulations and do not believe that any violation took place,” said Evergreen Energy spokesman Paul Jacobson.

A start is a start

Rob Hurless, energy adviser to Wyoming Gov. Dave Freudenthal, works closely with energy officials to bring clean coal technologies to the state. He said a rocky start-up is not unexpected for any new technology.

Evergreen’s Fort Union plant is the first of what is likely going to be a wide array of clean coal efforts in the state.

“I think that’s a normal process,” Hurless said. “These are significant technical advancements. When you’re working at that level of complexity in a marketplace that is itself complex, those are rough-and-tumble places.”

Hurless said Wyoming’s sub-bituminous coal hasn’t been the first-choice fuel source for such processes. But because Wyoming’s coal production is the cheapest and most prolific in the nation, there’s great interest to pair the resource with the emerging technologies.

“Any product or process faces challenges in its own marketplace. Some challenges are financial; some of them are market challenges,” Hurless said. “Fortunately, you have entrepreneurs up there who said, ‘OK, we’re going to take a chance, put our money in this and do the best to produce the product.'”

Energy reporter Dustin Bleizeffer can be reached at (307) 682-3388 or dustin.bleizeffer@casperstartribune.net.