Barry Cassell | Jul 01, 2012

The Sierra Club on June 28 released a new, 28-page study claiming that the days of cheap coal-fired power are now over, both in the U.S. and around the world.

The report, "Locked In: The Financial Risks of New Coal-Fired Power Plants in Today’s Volatile International Coal Market," challenges the traditional view that coal is a cheap and reliable energy option for countries around the world. At a time when coal-fired power is at a historic low in the U.S. and the European Union, the report warns of developing countries locking themselves into coal plant investments that face significant financial risk from rising costs.

The report, authored by Bruce Buckheit, former Director of the U.S. Environmental Protection Agency’s Air Enforcement Office, highlights the rising costs of coal plant construction, rising global coal prices, and the emergence of what it called an “Organization of Coal Exporting Countries” -- all of which make electricity from coal-fired power plants inherently risky and unaffordable for countries around the world. There is no such organization, by the way. The report calls this an organization “acting in effect, if not in name.”

“Environmental and public health concerns aside, the truth is coal is just a lousy financial investment,” said Justin Guay, Washington representative for the Sierra Club. “Policymakers and financial institutions need to catch up to this 21st century reality - coal is no longer affordable.”

Construction cost overruns of up to 100% have become common-place while coal prices continue to rise around the world, the report said. Those costs are exacerbated by an “emerging OCEC that dominates a highly concentrated global coal market,” said the Sierra Club. “The top two producers alone -- Australia and Indonesia -- account for more than 50% of global coal exports, providing ample opportunity for maintaining high coal prices.  Often prevented from passing on these costs to consumers due to domestic regulatory structures, coal plant investments in China and India retain maximum exposure to these cost fluctuations which puts significant pressure on profit margins, making them extremely risky investments.”

The fallout from these rising costs is already being seen, the report claimed. In India, the 4 GW Tata Mundra Ultra-Mega Power Plant project is seeking to be released from its long-term power purchase agreements in the face of billions of dollars in losses, before it has completed construction, it said. In the U.S., the recently-completed Spiritwood Station coal plant in North Dakota has opted to remain idle rather than operate at a loss, the report added.
Sierra Club points to scrapped coal plant projects in U.S.

“In the United States, plans for 168 new coal-fired power plants have been abandoned and another 100 existing plants are planned for retirement due in large part to increased financial and environmental costs along with intense grassroots opposition,” said the Sierra Club report. “As a result, coal-fired generation has fallen to its lowest share of overall generation in the past 35 years.

"The contribution of coal-fired generation in the U. S. dropped to 34 percent in March 2012, marking the lowest monthly share since January 1973. In Europe, coal’s share of generation has declined from 39.4 percent to 25.7 percent over the past 20 years. Of the 120 coal-fired power plants proposed in Europe since 2007, only half a dozen have broken ground and the overall share of coal in the fuel mix is declining rapidly. In 2011, 71 percent of the new electricity capacity in the European Union was renewable energy, while 22 percent was natural gas-fired generation.”

Leading competitors such as wind energy and solar photovoltaic (PV) panels are experiencing plummeting prices and rapidly becoming competitive with coal fired power, the report said. It documents that the cost of power from solar PV has fallen by over 60% since 2008, while new wind power can provide energy at 5-10 cents/kWh, making it competitive with coal in any market.

“Clean energy is increasingly competitive around the world,” said Guay. “Countries and financial institutions that lock themselves into coal investments are exposed to the risk volatile international fuel markets – something clean energy investments avoid.”

Sierra Club argues against coal in increasingly coal-reliant countries
Notable is that most of the coal development, and there is a lot of it despite the Sierra Club's contention, is in the developing world, including India and China. The report tries to argue against such projects, due in part to alleged price and supply risk for coal moving into those plants from offshore suppliers.

"This poses tremendous risk for a number of Asian countries that have undertaken construction of large numbers of new coastal coal plants that would rely to a significant extent on imported coal supplies," said the report.

 

Cassell is chief analyst coal for Generation Hub, where this article first appeared. GenHub is a unit of Energy Central

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