Fox Business News
PR Newswire
Tuesday, Feb. 26 2008
NEW YORK, Feb 26, 2008 /PRNewswire via COMTEX/ -- Utilities Relying on Coal "Losing Appeal,"
No Longer "Predictable Investment"; "Deja Vu All Over Again" Effect Seen in Once Promising Future
for Nuclear Power, Coal Slump
NEW YORK, Feb. 26 /PRNewswire-USNewswire/ -- With rising construction costs, regulatory
uncertainties, environmental concerns and other growing risks, the U.S. utilities with more than 100
proposed new coal-fired power plants now face "comparable risks and uncertainties" to those that derailed
the U.S. nuclear power industry in the 1970s, according to a major new report prepared by Synapse
Energy Economics, Inc., for the Interfaith Center on Corporate Responsibility (ICCR). The report
concludes that "coal is losing its appeal as a predictable investment and is instead fraught with
uncertainty."
ICCR unveiled the report today at a special briefing for the New York Society of Security Analysts
(NYSSA) in New York City. Entitled "Don't Get Burned: The Risks of Investing in New Coal-Fired
Generating Facilities," the ICCR analysis notes: "Until the 1970s, building new nuclear power plants
appeared to be a relatively low risk investment because construction and operating costs were relatively
stable and easy to predict. However, starting in the 1970s, the costs of building new nuclear power plants
began to spiral out of control. As a result, the actual costs of new plants were two to three times higher
than the costs that had been estimated during licensing or at the start of construction ..."
The report continues: "This history of nuclear investments is important because investments in companies
that are now proposing to build new coal-fired power plants face comparable risks and uncertainties: (1)
The likelihood of federally-mandated reductions in greenhouse gas emissions leading to high costs for
carbon-emitting resources; (2) state mandated reductions in greenhouse gas emissions and the adoption of
policies promoting increased use of energy efficiency and renewable resources that will reduce the need
for new power generation and adversely affect the relative economics of proposed coal-fired power
plants; (3) the uncertainties surrounding the technical and economic viability of carbon capture and
sequestration for pulverized coal-fired power plants; (4) skyrocketing plant construction costs and delayed
construction schedules as a result of the worldwide competition for power plant design and construction
resources, commodities and equipment; and (5) more stringent regulation of the current criteria
pollutants."
The ICCR report concludes: "Coal has played a major role in the electric industry, serving as the source of
more than half of this country's electricity for decades. However, in recent years, a seismic shift in the
understanding of energy use and its impacts, coupled with rising power plant construction costs, have
exposed coal to shifting circumstances and greater risk. As a result, coal is losing its appeal as a
predictable investment and is instead fraught with uncertainty."
Interfaith Center on Corporate Responsibility Energy & Environment Program Director Leslie Lowe said:
"Coal is an increasingly risky long-term investment. More than 20 proposed coal-fired power plants were
cancelled in 2007 and three dozen more were delayed. An increasing number of companies have
announced more generally that they will not seek to build any new coal-fired power plants at this time,
and some state regulators are beginning to reject coal plant investments as too risky and ill-timed for
current circumstances."
Synapse Energy Economics, Inc. Senior Consultant David Schlissel, the report's lead author, said:
"Historically, coal-fired power plants were a relatively stable and safe investment. But that's no longer
true. Today, investments in coal-fired plants carry far more risk, especially because of the likely
regulation of greenhouse gas emissions and rising construction costs. As a result, investors in both
regulated and merchant companies cannot be assured that they will recover and earn reasonable returns."
KEY REPORT FINDINGS
-- Expected federal regulation of greenhouse gas emissions will affect the ability of coal to compete. The
electric industry is facing a period of unusual regulatory uncertainty because we are in transition to a new
paradigm. Scientific consensus indicates that emissions of greenhouse gases jeopardize current biological,
economic and social systems. It has become clear that greenhouse gas emissions must be reduced, and
scientific evidence indicates that reductions of at least 60-80 percent below current emissions will be
necessary by the middle of this century to avoid the most dangerous impacts of climate change. Federal
regulation of greenhouse gases has become a certainty; and, as a major source of greenhouse gas
emissions, the electric sector will be one of the primary affected sectors. Though federal regulation of
greenhouse gases is certain, program elements remain undecided, with major issues such as stringency of
reductions and distribution of emissions allowances still undecided.
-- States are taking a harder look at coal. While federal regulation is still under development, an
increasing number of states are beginning to take specific and concrete actions to reduce greenhouse gas
emissions from the electric sector and to increase reliance on energy efficiency and renewable resources.
Regional efforts to reduce greenhouse gas emissions also have been undertaken by states in the
Northeastern, upper Midwest and Western areas of the nation. These state regulations and policies will
affect the competitiveness of coal-fired power generation and could also modify the demand for new
resources.
-- Construction costs and schedules are unpredictable and increasing. Uncertainties surrounding coal
extend beyond regulatory and technological issues. These uncertainties are compounded by the worldwide
competition for construction resources and materials. This competition for power plant design and
construction resources, as well as for commodities and equipment, result in prices spiraling upward with
unpredictable costs for plant owners and investors. Several power plant developers have cited these
factors in explaining capital cost escalation in specific power plant projects. For example, according to
Duke Energy Carolinas, new coal-fired power plant capital costs had increased approximately 90 to 100
percent since 2002. A large number of projects have announced significant construction cost increases
over the past few years. Industry research indicates that capital costs have increased more than 50 percent
in the past three years. As a result of rising capital costs, construction firms are no longer willing to
commit to fixed-price contracts, instead shifting the risks of higher prices to plant owners. Regulatory
uncertainty, due to the possibility that state rate regulator will disallow construction or operating costs,
results in further risk exposure to power plant owners and investors.
-- The economics of new coal plants will be further affected by tighter regulation of non-greenhouse gas
emissions. Coal-fired power plants will also be affected by further restrictions that are either pending or
proposed on NOx, SO2, and Mercury emissions. The Clean Air Interstate Rule includes a cap and trade
mechanism to reduce emissions of NOx and SO2 by plants in eastern states to approximately 70 percent
and 60 percent below 2003 levels once fully implemented. A companion rule, the Clean Air Mercury
Rule, targets coal-fired electric plants with goals of attaining 70 percent reductions from 2003 levels once
fully implemented. In addition, revisions to EPA's primary and secondary ground-level ozone standards
are pending.
-- Capture and storage technology is not commercially viable and may not be for years, or even decades.
Several companies have decided to delay investment in new coal until there is a carbon solution. As such,
future investments in coal plants hinge heavily on expectations of the availability of "carbon capture and
storage" (CCS: 23.45, -0.04, -0.17%). It is likely to be many years before CCS becomes technically and
economically viable. Due to the immaturity of CCS, any claims that a plant is "carbon capture ready" is
only a vague promise.
For the full text of the report, go to http://www.iccr.org on the Web.
ABOUT THE GROUPS
The Interfaith Center on Corporate Responsibility is a coalition of nearly 300 faith-based institutional
investors, representing over $100 billion in invested capital. ICCR members bridge the divide between
morality and markets by envisioning a civic economy that integrates ethical, environmental and social
values. Inspired by faith, committed to action, ICCR members work to build a just and sustainable global
community.
Based in Cambridge, MA., Synapse Energy Economics, Inc. provides research, testimony, reports and
regulatory support to state governments, the federal government, regulatory commissions, state energy
offices, consumer advocates, environmental organizations, and others. Synapse assesses the implications
of electricity and natural gas industry planning, regulation and restructuring. Synapse's work covers
various interrelated issues such as transmission planning, service reliability, siting, fuel diversity, resource
planning, financial and economic risks, renewable energy potential and renewable portfolio standards,
energy efficiency, electricity modeling, portfolio management, customer service and more. With this
expertise, Synapse has been successful at helping clients respond to the changing face of the electricity
and natural gas marketplace and at recommending strategies that protect consumers.
EDITOR'S NOTE: A streaming audio replay of the news event will be available on the Web at
http://www.iccr.org as of 6 p.m. ET on February 26, 2008.
SOURCE Interfaith Center on Corporate Responsibility, New York City; Synapse Energy Economics,
Inc., Cambridge, MA
http://www.iccr.orgCopyright © 2008 PR Newswire. All rights reserved
