If the Princeton, N.J.-based company proceeds, it would be one of the first moves by a power company to invest in ethanol, a low-polluting transportation fuel made from corn or sugar.
NRG is considering building an ethanol plant that would use steam from an existing power plant or from a new coal-fired boiler, Bob Henry, NRG senior vice president of operations, told Dow Jones Newswires in an interview.
"We are chasing a lot of different permutations on the theme of ethanol," Henry said.
NRG owns coal-burning power plants in Texas, New York and elsewhere in the Northeast, and plans to build new plants to boost its coal-fired generation capacity 46 percent over the next decade.
NRG's experience with handling coal and providing steam for third-party customers through its NRG Thermal subsidiary convinced executives that ethanol could be a viable investment, Henry said. Ethanol plants use steam to convert corn or sugar into a liquid that is then blended with gasoline.
"An ethanol refinery is an excellent steam host," Henry said. "You might as well take the upside of the ethanol business as well."
He declined to say when the company might decide on one or more ethanol projects.
Blue Flint Ethanol, a producer based in Underwood, N.D., is one of only a few U.S. companies pursuing a similar ethanol plant that uses steam produced from a coal-fired boiler. The company is building an ethanol plant near Underwood with an annual capacity of 50 million gallons that will use steam generated by Great River Energy's Coal Creek power plant. The plant is scheduled to start operating in March.
These plants have much lower fuel costs than other ethanol plants, as they run on steam produced by existing coal-fired power plants. By using excess steam from the power plant boiler, they eliminate the need to buy large amounts of coal just for the ethanol plant. They also cut costs by using coal, which is much cheaper than natural gas, the current dominant fuel for ethanol producers.
Environmentalists have supported the use of ethanol, because its use in automobiles results in much lower emissions, including greenhouse gases. They support ethanol plants that use steam from existing coal-fired boilers, although they're concerned that a spate of new coal-fired boilers will be built to power ethanol plants.
NRG's decision whether to manufacture ethanol will rest on how much flexibility one or more of its coal plants would have to produce ethanol, generate electricity or do both at the same time, Henry said.
The profile of the ethanol industry is changing quickly with the implementation of new laws that require U.S. gasoline refiners to blend billions of gallons of ethanol into their product each year. Whereas the first wave of ethanol plants were smaller models built by collectives of farmers, now large companies like NRG are taking a look at the industry with an eye toward building expensive, large-capacity plants that would be more efficient than their smaller-scale predecessors.
This wave of plant construction has prompted fears that the market could become oversupplied, causing a steep drop in prices. Henry said that risk is much more pronounced in the Midwest, where most production is now located, but significantly lower elsewhere.
"If you're in Southern California or Houston, you may have a totally different economic profile," he said.
Even if ethanol prices decline nationwide, less competitive plants would be driven out of business, leaving the low-cost producers a greater market share.
"The people who remain will have the most conservative, prudently designed project," Henry said. "If you're just going to be a copycat, you'll be in trouble. But if you take advantage of some inherent strengths you have, you could stick around."
