AES weighs expansion of US coal plants

AES weighs expansion of US coal plants

Washington (Platts)--2Jun2006

Global power developer AES is considering expanding all of its coal-fired
power plants in the US to capitalize on an industry trend away from natural
gas-fired generation, said company President and CEO Paul Hanrahan.

The company is reviewing expansions of its power plants in Oklahoma and Texas
and has added a lease on a nearby coal mine to supply the coal-fired Shady
Point plant in Oklahoma. Most of AES' 44,000 MW of generating capacity is in
other countries, but in the US, "wherever we have a coal plant, we're
considering expanding those facilities," he said.

Arlington, Virginia-based AES recently acquired the coal mine lease near the
320-MW Oklahoma plant. With it, "we're able to produce coal at a very low
price and help the margins for that plant," Hanrahan said in a presentation
May 31 at the Sanford C. Bernstein Strategic Decisions Conference in New York.
AES has begun to add coal mining operations to its list of global power
assets, with leases in Hungary and Kazakhstan, as both a means of providing
reliable fuel supplies and growing in "a lucrative part of the business."

Hanrahan said he expects the industry to place more value on solid-fuel
generation going forward. As a result, AES may expand its 160-MW petroleum
coke Deepwater plant in Texas with another generating unit. AES has the land
available, and it may add a unit if the company is able to offset the
additional emissions, Hanrahan said.

According to its web site, besides the 320-MW Shady Point plant in Oklahoma,
AES owns coal-fired generation in Pennsylvania: 125-MW Beaver Valley; New
York: 161-MW Greenidge, 675-MW Somerset and 126-MW Westover; Connecticut:
181-MW Thames; Hawaii: 203-MW Hawaii; Maryland: 180-MW Warrior Run; and
Indiana: 341-MW Eagle Valley, 1,102-MW Harding Street and 1,716-MW Petersburg.

Building may be less expensive

Comparing building to buying coal-fired plants, Hanrahan said plant
acquisitions have been priced quite high based on increased gas prices. He
pegged the cost of building a new plant at $1,500/kW but increasing due to
environmental compliance costs, compared with some acquisitions of coal-fired
plants that have been at $3,000/kW. "We think that over time it will balance
out," but the disparity is "driving a lot of people to build in some markets."

With a merger trend forecasted in the power sector, "we always look at
possibilities for acquisitions," but will only consider deals that add value
for shareholders and won't strain AES' balance sheet, Hanrahan said. The
latter factor could limit the company to deals worth about $2 billion, and any
acquisition likely would be of assets outside the US, he said.

Some 90% of the expected growth in global generation markets through 2015 will
come from countries outside the US, predominantly in Asia, Hanrahan said. "As
we see a shift in need, we can shift our development resources around the
globe." AES currently has seven power plants in China and can expand those
assets. "We've been pleased with our experience there."

Hanrahan also mentioned AES' recent foray into production of greenhouse gas
credits, which involves the formation of a joint venture with AgCert
International on projects to reduce greenhouse gas emissions. AES plans to
invest $325 million over the next five years in the joint venture, which will
capture methane at agricultural sites and either destroy it or use it to
produce electricity.

"The production of these offsets is important and it is a good business in
itself," Hanrahan said. AES views the emission reduction projects as part of a
$10 billion market, with most of the potential in Europe and other countries.

-- Tom Tiernan, tom_tiernan@platts.com

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