Labor costs are also on the rise in certain markets. Power plant contractors must compete with oil and gas projects for welders and pipefitters. Moreover, companies like Siemens are in a worldwide competition to hire qualified engineers who are in considerable demand.

Because of rising costs combined with pressure from environmental groups and an expected restriction in carbon emissions in the future, many U.S. utilities are exploring alternatives to building coal-fired electricity plants. Siemens has been ramping up building new natural gas plants, particularly in Utah, California, Oregon and Washington. Utilities are developing natural gas plants, which are often smaller in square footage and infrastructure and can be built in half the time of coal plants and usually at one-third to one-half the price, Karwowksi notes.

MATERIAL IMPACT

As the utility with the largest capital construction program in the United States, AEP has been contending with the effects of the spike in Asian power plant construction. It faces increased costs for nickel and zinc and has “to get into the queue for supplies such as cranes,” explains Nick Akins, AEP’s executive vice president for generation, who is based in Columbus, Ohio. Material costs have been rising at the rate of 10 percent a year, and Akins expects an 8 percent increase this year.

To counteract the wait for materials, AEP pre-ordered supplies for the building of its new ultra coal John W. Turk coal plant in Arkansas, which it expects to gain regulatory approval early this year. “We locked in orders for boilers, highly specialized tubs, and steam generators,” Akins says. If construction begins in 2008, it is expected to take three years to complete. Had AEP waited to order materials after approval, construction might have been extended another two years because of equipment delays. AEP has not shied away from building coal power plants. AEP is committed to developing “clean coal technology, capturing carbon, but we believe in a balanced portfolio of energy efficiency. Coal is a major resource, and the U.S. has a huge indigenous supply,” Akins states.

Raw material bottlenecks are also slowing down the prospect of building new nuclear plants for many utilities. The demand for Japan Steel Works reactor vessels that contain the nuclear reaction and house the active fuel is causing long delays in building new nuclear plants. JSW is the major global manufacturer of the product. “The queue for vessels is so backlogged that they would be delivered in 2015,” Akins notes. A nuclear plant begun in 2008 would likely not be finished until 2020.

Despite these delays and the increase in steel and aluminum prices, Eric Smith, associate director of the Entergy- Tulane Energy Institute in New Orleans believes new nuclear plants will soon be built in the United States. “Utilities are looking at nuclear power as an answer to a maiden’s prayer and a way to get around complaints of environmental air quality,” he says.

Because of the difficulty in obtaining material and competition for talent, building new capacity in a regulated market must be done five or six years in advance, reports Ed Day, an executive vice president at Southern Company Generation in Birmingham, Ala., who is responsible for engineering and construction. Since Southern and other utilities must do planning for the more distant future, it heightens risk factors and makes it more difficult to predict future power needs.

Southern Company faces stiff competition from refineries that need to be rebuilt because of the Katrina disaster in the Southeast for skilled ironworkers, sheet metal workers, and welders, Day notes. Workers who earned $25 an hour several years ago are now earning $35 to $40 an hour and many have not previously worked in utilities or large industrial facilities.

Nonetheless, Southern has proceeded in building three natural gas units, two in Orlando, Fla. and one near Columbus, Ga. What previously required two to three years to complete now takes twice that long, Day says, because of having to wait for material, find the necessary engineers, obtain skilled workers and get the necessary permits in advance.

CHINA SYNDROME

All of China’s infrastructure growth, not just coal power plants, is driving up the prices of raw materials, says Barry Worthington, executive director of the United States Energy Association, based in Washington. The coal plants themselves are only having a modest effect on the United States, he adds. “Whether you’re putting a plant in the ground in Nevada, Texas or China, you’re paying global prices,” he says. Whether a U.S. utility decides to build a power plant is more affected by regulatory and public opinion issues due to climate change than to electricity development in China, he says.

However, Worthington asserts that U.S. utilities are beginning to see a gradual rise of coal prices affected by global markets. Though most U.S. utilities are currently covered by long-term contracts, when these contracts are renegotiated, prices may rise. The United States doesn’t export coal to China, though Australia and Indonesia do.

Tulane’s Smith says the price increases due to new Asian plants are not the major stumbling block preventing the United States from building new plants. “It’s part of the equation but not the major variable. Ask any utility that uses coal in great qualities and they’ll say they can handle these other issues and still deliver enough power to satisfy everyone.” Last year, U.S. utilities cancelled the building of 31 coal plants, mostly due to pressure from the environmental community.

Some experts say the rising cost of building materials will promote renewable energy in the United States. Brad Collins, the executive director of the American Solar Energy Society, a nonprofit membership organization based in Boulder, Colo., says, “The skyrocketing demand of energy in China will spur more renewables in the states. The construction of these plants in Asia has put a worldwide demand on steel and concrete and that raises the cost of construction of such plants in the U.S.”

Much of the renewables energy growth in the United States has been centered in utility-scale wind farms, mostly in Arizona and Nevada. Ironically, Collins says that China also has mandated portfolio standards to increase wind, solar and geothermal renewables. Smith notes that with the Olympics coming to Beijing in 2008 the Chinese are concerned about environmental issues. “If you look up at the sky you can’t see your hand in front of your face” due to pollution, he says.

Moreover, Collins adds that the additional carbons emitted in China are making a strong case for turning to renewable energy. “The increase of the amount of coalfired electric generation in China ... makes an argument for carbon capture and sequestration,” he says.

Renewables are facing their own price hikes. Worthington says the rising cost of materials is not solely attributable to China’s development. The price of silicone in solar photovoltaics has been rising, and aluminum prices in wind turbines and blades have been moving up.

AEP’s Akins expects that much of the rising costs of raw materials, which are partially due to the new construction in Asia, will result in “escalating prices to ratepayers.” He adds, “The international market is driving prices in the United States.”