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Published: December 3, 2009
Beginning next Wednesday and for the
following two weeks Copenhagen will have the coal industry on
pins and needles. That's where President Barack Obama and
leaders of 190 other countries will convene to try to reach a
consensus on reducing carbon emissions.
It's doubtful that the international community will come to an
actual agreement in Denmark. Too many interests, too little
time. However, the event is sure to put the spotlight on
coal--the world's largest source of energy for power generation
as well as one of the largest sources of carbon dioxide
emissions.
On the docket back home is "Cap and Trade" legislation, which
would require carbon-emitting industries to purchase carbon
allowances from the U.S. government. If a company emits less
carbon than its allowance, it can sell the leftover permits to
another company. If it pollutes more, it will need to buy more
permits. For utilities, which generate 44% of the United States'
power from coal, the effect could be crippling.
From an economic point of view, a wounded coal industry would
not be a wise option. As the world's second-largest consumer of
coal behind China, the United States simply uses too much of it
to make a clean transition any time soon. The United States uses
1.2 billion tons of coal a year to fire close to 1,500 power
plants producing 336,040 megawatts of power. And we're not
running out: Estimates put U.S. coal reserves at about 500
billion tons, or a 400 year supply. Put simply, coal is too big
to fail.
This leaves two options for reducing emissions: Use less coal,
which would translate into higher electricity prices, or make
the burning of coal cleaner. Any company that can help the
industry become cleaner stands to reap a fortune.
Clean energy is highly desirable, but at what cost? When Andy
Obermueller
wrote about this issue in June, he cited $700 billion as the
cost of replacing coal-fired power plants. And even if the price
tag weren't prohibitive, it would take years to complete.
The only viable option is to make coal cleaner.
Fuel Tech Inc. (Nasdaq: FTEK) does just that. It's
quickly finding itself an ally of environmentalists and the coal
industry alike. And at this point, it has the field all to
itself.
As a leading provider of pollution control technology, Fuel Tech
should benefit from environmental regulations and see a flood of
orders for its services as regulations tighten, especially if
cap-and-trade legislation passes.
The Problem with Coal
There are two key areas where Fuel Tech helps the coal industry.
One is nitrogen oxide emission. Nitrogen oxides are formed when
coal is burned and causes nitrogen within the coal to be
released or when nitrogen within the air breaks apart and
combines with oxygen. These pollutants are linked to the
formation of ground level ozone and respiratory ailments.
New environmental legislation is forcing power plants to cut
nitrogen oxide levels by as much as -60%. One of Fuel Tech's
products, the NOxOUT Cascade system, can cut nitrogen oxide
emissions up to -80% for a fraction of the cost of competing
technologies.
Another problem is "slag" -- the leftover waste from burning
coal. Many utilities are beginning to use cheaper coal mined in
areas like Wyoming's Powder River Basin. It contains impurities
like sulfur and iron that cause buildup and reduce a plant's
efficiency.
Normally, a utility must shut down a plant for up to two weeks
and use explosives to remove slag. Fuel Tech's FUEL CHEM
division uses a patented chemical treatment to eliminate slag
and enhance the performance of power-generating equipment -- all
while keeping the plant online. Morningstar estimates
slag-reduction could grow into a $1 billion market in the United
States alone.
But Fuel Tech's potential isn't confined to the United States.
China has an insatiable appetite for coal -- it now uses more
coal than the United States, Europe and Japan combined. Coal
supplies a whopping 80% of China's electricity.
Fuel Tech has strategic partnerships that open the door to the
Chinese market, which could be worth at least two to three times
the potential of the Unites States. India and Mexico are also
coal-heavy markets the company is penetrating.
The slag removal business is still in its infancy, but Fuel Tech
has a leg up. FUEL CHEM requires plants to restock chemicals,
which represents a recurring revenue stream. The company has 24
customers in the United States, out of a possible 1,512. The
more customers it adds, the more scalable the business becomes.
When the attention turns to coal next week, Fuel Tech will be
ready. The company has a trailing twelve month revenue of $71
million and no long-term debt. As Fuel Tech gets more customers
and adds more recurring revenue, earnings are likely to
snowball.
Brad Briggs
Staff Writer
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