High Cost a Factor in New Coal Slowdown

February 20, 2008 – Vol.12 No. 48

HIGH COST A FACTOR IN NEW COAL SLOWDOWN.

If the first step to stopping catastrophic climate change is to ban the construction of new coal-fired powerplants, don’t look to Washington for help. The game of continuous fundraising for reelection keeps politicians too close to special interests and too far away from making responsible laws that are good for the country, let alone the survival of the planet: The safety of a warm seat in Congress is more important than the safety of the world.

Yet all is not lost in the effort to stunt the growth of coal. From court rooms to board rooms across the land new coal is being rejected. In an update to “Plan B 3.0: Mobilizing to Save Civilization” by Lester R. Brown and the Earth Policy Institute, Brown notes that “in early 2007, the US Department of Energy listed 151 coal-fired power plants in the planning stages and talked about a resurgence in coal-fired electricity. But during 2007, 59 proposed US coal-fired power plants were either refused licenses by state governments or quietly abandoned. In addition to the 59 plants that were dropped, close to 50 more coal plants are being contested in the courts, and the remaining plants will likely be challenged as they reach the permitting stage.”

Grassroots efforts, actions by environmental legal groups and states attorneys general have cumulatively helped to slow the tide of new coal plants. Wall Street, too, has suddenly turned against coal, according to the Plan B update "US Moving Toward Ban on New Coal-Fired Power Plants". Wall Street is concerned that eventual caps on carbon emissions will make coal too expensive, thus a poor investment. In July 2007, Brown says that “Citigroup downgraded coal company stocks across the board and recommended that its clients switch to other energy stocks. In January 2008, Merrill Lynch also downgraded coal stocks. In early February 2008, investment banks Morgan Stanley, Citi, and J.P. Morgan Chase announced that any future lending for coal-fired power would be contingent on the utilities demonstrating that the plants would be economically viable with the higher costs associated with future federal restrictions on carbon emissions. On February 13, Bank of America announced it would follow suit.”

Now there’s more evidence that coal is in trouble. Powerplants - of all kinds; coal, wind, gas and nuclear - are getting very expensive to build.

The new Power Capital Costs Index (PCCI), developed by IHS Inc. and Cambridge Energy Research Associates (CERA), has risen 130 percent compared with base year 2000. Translated, this means that a new power plant that cost $ 1 billion in 2000 would cost $ 2.3 billion today. The index also shows that the cost of new power plant construction in North America increased 27 percent in 12 months and 19 percent in the most recent six months.

Even if nuclear were excluded from the index, the cost of coal, gas and wind energy has risen 79 percent since 2000.

The new PCCI – which tracks the costs of building coal, gas, wind and nuclear power plants indexed to year 2000 – is a proprietary measure of project cost inflation similar in concept to the Consumer Price Index (CPI). It provides a benchmark for comparing costs around the world and draws upon proprietary IHS and CERA data bases and analytic tools, as well as data from PowerAdvocate, a strategic partner in this project.

“These costs are beginning to act as a drag on the power industry’s ability to expand to meet growing North American demand, and leading to delays and postponements in the building of new power plants,” said Candida Scott, lead researcher for the Capital Costs Analysis Forum for Power, a new project of CERA. “As the cost of construction rises, firms may become reluctant to invest in new plants, or delay and postpone these projects, in turn constraining the growth of capacity.”

CERA analysts blame the construction of new powerplants in the Middle East and Asia as driving costs up in the US. Many of the components, even raw materials to build new plants, are imported, creating a tight global demand thus high prices. Shipping costs too have risen, adding to the cost of projects.

Of course the index includes wind energy projects which have seen the same inflation in the North America as coal.

The IHS/CERA PCCI tracks the costs of equipment, facilities, materials and personnel (both skilled and unskilled) used in the construction of a geographically diversified portfolio of more than 30 power generation construction projects throughout North America.

Cambridge Energy Research Associates (CERA), an IHS company, is an advisor to energy companies, consumers, financial institutions, technology providers, and governments.

IHS Inc. is a global source of critical information and insight for customers in a broad range of industries.

Links:

IHS/CERA Power Capital Costs Index (PCCI)
http://www.ihsindexes.com

Cambridge Energy Research Associates
http://www.cera.com

Earth Policy Institute
http://www.earthpolicy.org

“US Moving Toward Ban on New Coal-Fired Power Plants" by Lester R. Brown
http://www.earthpolicy.org/Updates/2008/Update70.htm