Nine years after his technology was lauded as a cost-effective way to continue using coal for power plants in Colorado Springs and across the nation, Dave Neumann believes it’s no longer sensible to market his product in the United States.

So the former U.S. Air Force Academy professor and researcher now is marketing his Neumann Systems Group’s emissions-control strategies for plants in other countries, particularly China.

“Marketing of NeuStream systems has been adversely affected by the cataclysmic changes of the past seven years in the U.S. energy and power generation industries,” Neumann said in an email to the Colorado Springs Business Journal. “By the end of 2016 approximately 400 ‘unscrubbed’ U.S. coal-burning units will have been shut down.”

Neumann blames the Obama administration’s “negative policies relative to coal as a power source for the U.S.” and the “low cost and availability of natural gas” for the market changes that have limited his coal scrubbers’ appeal in this country.

“Thus there is essentially no market in the U.S. for NeuStream desulfurization systems,” Neumann added in the email. “However, NSG is pursuing international market opportunities including ongoing negotiations with two Chinese companies for licensing and installation of the technology. The potential market as identified by one of the Chinese companies is several thousand small, coal-fired boiler systems used for power generation, heating and industrial applications.”

Different circumstances

Neumann said natural gas, while plentiful and cheap in the United States, “is generally not available in China and when it is available, it costs over five times the cost of coal. Therefore, no shift from coal use to natural gas use is expected in China for the foreseeable future.”

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Neumann Systems Group also has been affected by the dramatic drop in crude oil markets, Neumann said.

“Additional NSG marketing and contracts for NeuStream carbon capture equipment to several major U.S. oil companies for use in Enhanced Oil Recovery have been derailed by the oversupply and precipitous drop in the price of oil,” he said. “NSG continues to seek other markets for the NeuStream technology.”

NeuStream continues to be used by Colorado Springs Utilities to keep Martin Drake Power Plant operational and in compliance with federal regulations. But the project’s cost has risen far beyond initial estimates for removing sulfur dioxide from coal-fired emissions.

In 2011, when Neumann and Utilities signed a contract, costs were estimated at $98.9 million with the total capital cost of the system at $111.8 million.

Since then, the cost has increased to $178.4 million as of Dec. 31, not including $27.3 million that CSU invested in the public-private partnership between 2007 and 2011. Once assigned to research and development, the $27.3 million was reclassified as an operating expense in 2011 and has never been included in the total project budget. Adding that figure brings the total cost to $205.7 million.

CSU’s initial goal was to keep Drake open and operational for at least 40 years, since narrowed to 20 years.  That was another reason for going with NeuStream, it’s small enough to fit into the constrained site.

In a 2011 business case study, CSU said employing NeuStream should result in avoided costs for sulfur dioxide removal compliance, 500 new jobs and a portion of the profits when the system was marketed commercially. So far, none of those predictions have been realized.

CSU officials say the outlook for Neumann’s company could change — and the city might see a return on its investment. Part of the original agreement was that CSU would receive 1 to 2 percent of profits from additional sales of NeuStream.

“NSG is currently negotiating with a company in China to implement NSG-designed improvements to existing dual-alkali scrubbers at multiple facilities,” said Dan Higgins, until very recently CSU’s manager of energy supplies. Higgins now serves as the water services manager.

Costs and caveats

Although the cost of the Neumann system at Drake has increased, the cost of a traditional system now being installed at Nixon is well below 2011 estimates.

Higgins ascribes the “favorable pricing” of the Nixon installation to changing market conditions.

“A key contribution to favorable pricing on the Nixon scrubber was the shift in supply and demand for scrubber-related work at the time Colorado Springs Utilities moved forward with the formal procurement effort,” Higgins said. “Our timing for Nixon was such that there was a broad excess supply of engineering and technology providers for scrubber work and limited demand for scrubber installations given the changing regulatory landscape associated with coal and coal-fired generation. The markets were fundamentally in our favor and these circumstances yielded a lower than expected price for primary engineering and construction services.”

“NSG is pursuing international market opportunities including ongoing negotiations with two Chinese companies.” 

– Dave Neumann

Drake’s price increases were due to other factors, he said.

“The total project cost includes other items such as site improvements that are required regardless of the selected scrubber technology,” Higgins wrote, “[including the] owner’s engineering services, escalation of costs from 2011 to 2017, spare parts, etc. Our SOX and NOX projects are on track to finish within our total emission controls program budgets as stated in February of last year. System and subsystem tests on the NSG scrubber have been very successful thus far. We are preparing to begin our first testing with flue gas in the scrubber this month.”

Higgins also agreed with Neumann’s assessments, saying: “Since the decision to install NSG technology at the Drake Power Plant, reduced dependence on coal and the Clean Power Plan announcement have had significant impacts on markets associated with coal-fired power.”

According to the Energy Information Administration, coal-fired power plants generated 51 percent of U.S. electricity in 2003, while gas-fired plants accounted for 17 percent. In 2014, coal’s share had declined to 36 percent, while gas increased to 31 percent.

City Council President Merv Bennett, the only sitting councilor who was part of the decision to sign the 2011 contract, said little could have been done to change course when he came onto council.

But at a December Utilities Board meeting, Bennett voiced his support for shutting down Drake’s oldest generator within two years, suggesting CSU made a mistake by investing in pollution control for Drake.

“When I came on council we had already committed $60 million to Drake,” Bennett said. “I think now that it would have been better to invest in new facilities than to put money into an aging plant.”