INVESTORS WARNED AGAINST COAL-FIRED POWER PLANTS

by Abid Aslam

(IPS) WASHINGTON -- Prospects for coal-fired power plants have dimmed amid soaring construction costs, regulatory uncertainty and concern about global warming, say energy economists.

Dozens of proposed plants have been dumped or put on hold in the past year and U.S. utilities still seeking to build new coal-fired generators face risks comparable to those that derailed the U.S. nuclear power industry in the 1970s, according to a new report prepared by researchers at Synapse Energy Economics, Inc. for the Interfaith Center on Corporate Responsibility (ICCR).

"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," says the report.

After providing more than half the U.S. electric supply for decades, it concludes, "coal is losing its appeal as a predictable investment and is instead fraught with uncertainty."

The ICCR, a coalition of 300 religious investors with a combined portfolio of some $100 billion, unveiled the document this week to Wall Street security analysts in hopes of promoting less ecologically damaging energy ventures.

"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," says the report.

Among these, it lists the likelihood of government-mandated reductions in greenhouse gas emissions, which would drive up the cost of carbon emitted when coal and other fossil fuels are burned. Regulations governing the release of other pollutants also will be tightened, adding to the cost of doing business.

Utilities face reduced demand for coal-based electricity, researchers say, as public policy is likely to emphasise energy efficiency and renewable power sources such as the wind, tides, and solar power.

Additionally, technical and economic difficulties bedevil efforts to minimize coal-fired power plants' contribution to global warming and new construction is dogged by runaway costs and delays as competition for equipment and commodities intensifies. Some projects still confined to the drawing board have seen their cost estimates more than double.

"More than 20 proposed coal-fired power plants were cancelled in 2007 and three dozen more were delayed," said Leslie Lowe, energy and environment program director at the ICCR. "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."

David Schlissel, the report's lead author, sees the signal for investors as having switched from green to red.

"Investors in both regulated and merchant companies cannot be assured that they will recover and earn reasonable returns," said Schlissel, a senior consultant at Synapse Energy Economics.

Lowe and Schlissel might be preaching to the converted.

Major investors have begun looking elsewhere amid rising concern that tougher regulations, widely expected from the U.S. Congress, will turn up the financial heat on coal-fired power plants.

Citigroup, J.P. Morgan Chase & Co., and Morgan Stanley on Feb. 4 released new environmental standards requiring utility companies to devise plans to minimise and mitigate carbon dioxide pollution from any new power stations and prove their financial soundness even in the face of tighter regulatory constraints.

In January, the U.S. Energy Department scrubbed a $1.8 billion "clean coal" project in Illinois. Officials cited rising construction costs. Their decision was seen as a major blow against industry, which saw the project as a way of demonstrating that coal-fired power plants could be built to emit little carbon dioxide.

Even so, coal's supporters say it is a local resource in abundant supply and as such should not be dismissed in a time of surging energy demand and turmoil overseas.

Americans for Balanced Energy Choices, a lobby set up by businesses that mine, trade, burn and transport coal, has taken to campaigning in key districts and over the airwaves in hopes of winning over politicians and the citizens whose votes they seek in November's elections to Congress and state legislatures.