July 29, 2009
Bill Opalka
Editor-in-Chief
Energy Central
With carbon cap-and-trade legislation wending its way through Congress in the early part of the year, many electric power companies were taking a wait-and-see attitude toward new plant construction. And wait. And wait.
That doesn't tell the whole story, though, as many producers are doing more than wait -- they are canceling coal plants outright. According to the Edison Electric Institute, at least nine coal plants representing 6,650 megawatts have been canceled by May 2009, joining 24 plants that were scuttled in 2008.
But cap-and-trade tells only a part of the story. When the financial crisis hit the markets last year, wavering executives wondering about the fallout after a crucial presidential election had even more reasons to stop, slow down or even halt new plant construction. Climate and energy legislation, as well as a profound shift in environmental policy from the previous eight years, have made power companies that rely on fossil fuel generation to serve their load even more reticent to pursue projects that are now deemed risky. Overlaid on this is an economic recession that has slowed the demand for additional generation capacity, at least in the short run.
According to the Sierra Club, only 59 of the 220 coal-fired plants planned and in various stages of permitting since 2001 remain actively under development, which means trends well under way a year ago have only accelerated in recent months. Major cancelations include:
The Navajo Nation in New Mexico planned to build the Desert Rock 1,500 megawatt coal-fired power plant on its reservation in New Mexico but its permit was revoked by the EPA.
NV Energy is postponing plans for a $5 billion, 1,500 megawatt Ely Energy Center in eastern Nevada.
LS Power subsidiary Mid-Michigan Energy cited "regulatory and economic uncertainty" when it cancelled the 750-megawatt Midland Power Plant in Michigan.
Alliant Energy subsidiary Interstate Power and Light Company canceled plans to construct the Sutherland Generating Station Unit 4 in Marshalltown, Iowa, due to the "financial climate and ... regulatory uncertainty."
Other cancelations or delays have included: Entergy Louisiana was ordered by the Louisiana Public Service Commission to suspend the Little Gypsy Repowering project; LS Power withdrew its application to build the White Pine Energy Station in Nevada and the Elk run project in Iowa; and AES has withdrawn its air permit application for a new 650-megawatt unit at Shady Point in Oklahoma.
"The development landscape has changed significantly since we agreed to enter into the development joint venture with LS Power in the fall of 2006," Bruce Williamson, chief executive of Dynegy Inc., LS's partner, said at the time of the Michigan announcement. "Today, the development of new generation is increasingly marked by barriers to entry including external credit and regulatory factors that make development much more uncertain."
Capital Spending
Economic uncertainty late last year created a massive rethinking of building plans for one of the nation's largest utilities, American Electric Power, said Nick Atkins, executive vice president for generation. Last fall the company not only slammed the brakes on its current projects but made decisions impacting billions of dollars in capital spending over three years.
"We were forced to reduce our capital spending to $1.8 billion from what has planned to be $3.5 billion for the year when we saw 15 percent of the load drop off," Atkins said. So going forward, AEP will keep spending flat through 2011, committing to $1.8 billion yearly, just about a 50 percent drop-off from its previous long-term plans. The company will concentrate on allocating its existing asset base instead of adding substantially to its base-load portfolio. But long-term, "you have to include coal. That has to be part of the base-load and you need a balance."
Even previously permitted plans were not immune from the slowdown. The EPA rejected South Dakota's approval of the Big Stone II coal-fired power plant in that state because it found the inconsistencies with the Clean Water Act. EPA Administrator Lisa Jackson moved to block construction of the plant as part of the new overall strategy to combat global warming. Jackson made an endangerment finding indicating that human health and welfare are threatened by CO2 emissions under the Clean Air Act.
Not all coal projects have been put on hold, especially if there is a carbon capture and sequestration potential. If the 20-megawatt trial at the Mountaineer Plant in New Haven, W.V., is deemed successful, then American Electric Power (AEP) will implement the same technology in 2011 at another facility in Oklahoma in a 200-megawatt project.
That W.V. project might influence FutureGen. That zero emissions project was revived in the economic stimulus package passed earlier this year. U.S. Energy Secretary Steven Chu said President Obama would support the plant with "some modifications." FutureGen is aimed at producing 275 megawatts of electricity.
New construction is one of the more visible aspects of resource planning, but there have also been effects on maintenance and retrofits. For much of the past couple years, an expensive program in the eastern half of the U.S. has been ongoing. The on-again, off-again, and now on-again Clean Air Interstate Rule case has accounted for much of the capital expense of utilities. CAIR is a mandate in 27 states and the District of Columbia to reduce NOx emissions.
Peter Spinney, Director of Market and Technology Assessment at NeuCo, Inc., a provider of optimization technology for the electric power industry, said spending on this issue has not been adversely affected. "The industry as a whole is shying away from big ticket items and is concentrating on operational efficiency as it is waiting to see what kind of a price signal it will get on carbon."
The trend toward reducing greenhouse gas emission is getting stronger. The same is true for all other types of emissions. Utilities are undoubtedly affected by all this and their future blueprints are reflecting this.
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