Rough Going for Developers of New Coal-Fired Generation Capacity

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Researched by Industrial Info Resources (Sugar Land, Texas)--Coal-fired generating plants continue to supply about half of the electricity consumed in the United States each year. In recent years, we have witnessed a significant amount of construction activity moving forward to add more coal-fired generation. During this time, inflated natural-gas prices and competitive coal prices have been the key drivers behind the development of new coal-fired generation.

Since the beginning of 2000, there have been 34 coal-fired generating stations with a total capacity of 6,000 megawatts (MW) that have started operation. At present, more than 17,000 MW of new coal-fired capacity is under construction in the nation. This represents activity at 29 plant sites: 14 grassroot, or new plants, and 15 expansions to existing generating stations. These coal-fired projects, valued at more than $22 billion, have completion dates ranging from 2009 to 2012. One of these projects is Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) subsidiary Duke Energy Indiana Incorporated's 630-MW integrated gasification combined-cycle project in Edwardsport, Indiana.

Beginning in early 2007 a trend of project cancellations and delays began for new coal-fired generation. This trend is expected to continue, driven mostly by escalating capital costs and the growing uncertainty over the possible implementation and timing of regulations regarding carbon dioxide (CO2) emissions. An example of one coal-fired project that has fallen victim to concerns over CO2 emissions is the Deseret Generation and Transmission Cooperative's 110-MW unit addition at the Bonanza Power Plant. The Environmental Appeals Board of the Environmental Protection Agency (EPA) ruled that the EPA had no valid reason for refusing to require that the best available control technology be used to limit CO2 emissions from the new unit. This is based on a 2007 ruling of the U.S. Supreme Court recognizing that CO2 is a pollutant under the federal Clean Air Act and can be subject to regulation by the EPA. This has created concern in the industry that there could be far-reaching effects on new coal-fired projects in the United States. The current economic decline and tightening credit markets are likely to lead to additional project deferments and cancellations.

Regardless of these constraints, beyond 2008 there are 116 new coal-fired units representing 41,000 MW that have been proposed in the nation. There are still 34 units and nearly 11,000 MW of new coal-fired capacity that could begin construction in 2009. The majority these units and associated projects, in the best of circumstances, are expected to be delayed beyond 2009.

How much new construction of coal-fired capacity will actually move forward remains to be seen. Demand in the United States is anticipated to see an average increase of 1.7% per year through 2030. New base-load capacity is needed not only to meet growing demands, but also to replace capacity scheduled for retirement from an aging generation fleet.

For a detailed forecast and analysis of project spending in the coal-fired power generation sector see Industrial Info's recently released 2009 Power Industry Outlook.

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