The end of dirty coal?

There was an interesting article in the Globe and Mail about a proposed acquisition of Texas Utilities (TXU) by a private leverage buyout.  TXU scrapped plans for 8 of their proposed new coal plants, as part of a move to placate environmental groups, so the regulator would allow the transaction.

Across the US, proposals for new coal plants are in trouble.  In North Carolina, Duke energy had only one approved, and one rejected.  Peabody has two plants tied up in the courts.  Since 2000, only 4 new US plants have come on line.

According to the article, there are only 11,000 MW of new coal plants likely to come on line in the US between now and 2010.  The US currently has about 1,000,000 MW of electrical generating capacity, so this means coal will increase the total electricity capacity in the US by about 1% in 4 years.  But US demand for electricity is growing by 1%/year.  Clearly, the new capacity gap is being filled by other technologies, principally gas, but also renewables.

The US installed 2500 MW of new wind last year.  The forecast for this year is 3000 MW.  It appears likely that there will be more new capacity of wind installed than coal by 2010.  Considering where we are today, with coal supplying 50% of US power, and wind supplying less than 1%, that is a big shift, even when factoring in a lower capacity factor for wind.
So the renewables revolution is happening.   But still we are installing a few new fossil plants that will likely operate for 40 years or more.  So emissions will still rise, but not as fast.

There has been much talk of “clean coal”, where coal is gassified, and Nox, SOX, mercury, and even CO2 are removed.  But so far this is just talk.  A demonstration plant or two have been installed, but their long term costs are still uncertain, and utilities do not have many on order.  Unlike wind, it is an unproven technology.

It seems to me that investors should be very wary of investing in firms that are building new fossil fuel based generating capacity.  In Canada, it is clear that the political winds have changed, and that the risk of a carbon tax, emission trading system, or other measure that will limit emissions or drive up the cost of generation by fossil fuels is inevitable.  That will reduce the value of a fossil generation station, and the firm that owns it.  It is only the timing and extent of this value erosion that is question.

The journey of a thousand miles begins with a single step.  Perhaps we have taken one.

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