It Is Not Just Capital Costs that Hinder Coal Plants

Implications:     As the article correctly points out, capital costs to build a new power plant have risen considerably since 2000; coal plants included.  It is not just the up-front capital costs that have affected decisions to build new coal plants as discussed in the commentary section.

Analysis:     When a new power plant is considered, a real- levelized-cost analysis is performed to determine the alternatives’ economics.  Such analysis considers the plants’ capital costs, return on/of capital requirements, fuel costs, fuel transportation costs, fixed operations and maintenance costs, and emissions-related costs.  Such real-levelized cost analysis is generally done over the 40-year life of the plant, and is also sometimes called “life cycle costs”.
 
     As the referenced article pointed out, the capital costs to build new power plants has soared; including coal plants.  For natural gas-fired plants, the cost of natural gas has risen dramatically in the last few years.  More recently, the coal and transportation costs have soured; in some cases doubling.  This has helped close the economic advantage of coal-fired generation over natural gas-fired generation.
 
     This gap has further closed because of the potential risks and cost impact of CO2-limiting legislation that would essentially tax CO2 emissions from fossil fuel-fired power plants.  A coal plant emits approximately 1 tonne (metric ton) of CO2 per MWh, while a natural gas plant emits approximately 0.4 to 0.5 tonne of CO2 per MWh.  This CO2 cost on coal, on a static analysis basis, closes the gap between coal-fired generation and natural gas-fired generation.              

    The “Climate Security Act of 2008” sponsored by Senators Lieberman and Warner if implemented in its current form is anticipated to add approximately $40/MWh to the real- levelized cost of a coal plant.  Such potential CO2 risk and costs have slowed the announcement of new coal plants and even the cancellation of previously announced coal plants.  New natural gas-fired power plants have been the beneficiary of these cancellations.