The Twilight of Dirty Coal
- Frances Beinecke
- President of NRDC, New York City
- Blog | About
- Posted February 11, 2008 in Curbing Pollution , Solving Global Warming
Many of the issues we work on take decades to get the results we want. But at other times, things begin to fall into place with surprising speed. That’s happening now with dirty coal.
Over the past year, one after another coal-fired power plant has been blocked by the environmental community across the country, and many more are still disputed. And just this last week, the Wall Street Journal announced that three of our largest financial institutions adopted new lending principles that take into account the growing risks of investing in conventional coal plants. See the New York Times Sunday editorial.
Why does this matter? Because Wall Street is sending a potent signal to the energy sector that it views dirty coal plants as shaky financial prospects and that the smart money is heading toward cleaner, more sustainable energy options.
Governor Dave Freundenthal of Wyoming--the biggest coal producing state in the nation--said of the announcement: “It’s probably, frankly, a signal more powerful than one from the federal government.”
You see, when an electric utility builds a new power plant, it has to attract capital from investment banks to cover the enormous costs of construction. It takes a good 20 to 30 years to recoup that money.
America will certainly enact new carbon regulations well before the banks will get their money back. Because coal plants have the highest carbon pollution per unit, they will take the biggest financial hit when limits are set. Banks that invested in coal plants will have to wait even longer to get a return on their investment. Or worse, they will be left with bad debt when the plants have to spend lots of money to buy pollution allowances.
On top of that, the market for conventional coal power will likely shrink. Already, California utilities are prohibited by law from making long-term investments in power generation that has high greenhouse gas emissions. In other words: dirty coal.
All of this adds up to a lot of uncertainty, and the financial community hates uncertainty. That’s why three of the biggest lenders-- Citigroup, J.P. Morgan Chase and Morgan Stanley--decided to attach new terms to the hundreds of millions of dollars they typically loan to utilities. These heavy hitters will now focus on energy-efficiency and renewable energy before backing coal plants.
We have seen before the power of the financial community to impact energy decisions. As my NRDC colleague Ralph Cavanaugh--a man who has tracked the utility sector for more than 30 years--has said, “There are 150 plants in on the books today, many of them still looking for investors. Back in the 1980s, more than 100 nuclear plants were cancelled because the financial community lost confidence in them. My prediction is the same will happen with conventional coal.”
Looks like Ralph’s prediction is coming true.
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Comments
Luke Smith — Feb 13 2008 05:41 AM
... but there's still plenty of work to be done holding these banks to their word and pushing them for more. At Rainforest Action Network, our motto is: "the proof is in the pollution."
Jim Bullis — Feb 13 2008 07:15 PM
We need to be careful. It is possible to end up burning more coal rather than less.
Thirty years ago, the electric power generating community was thoroughly punished for having built nuclear power plants. Regulators refused to allow utilities to pass on losses that were incurred in building, or even cancelling, nuclear facilities to their rate payers. Since then, a major shift was made to coal fired electricity generation. Such memories are not easily forgotten by investors.
More recently, some power generating companies planned and constructed very efficient natural gas fired, combined cycle power plants. The planning was done when natural gas was at $2.00 per MMBTU. An example of a company that took this approach was Calpine. They just emerged from bankruptcy, with stockholders shares having been cancelled.
California prohibits construction of new coal fired power plants, and prohibits contracting for electricity from such plants outside the state. However, the spot market does not tag the source, so when power is needed and is bought on the spot market as a commodity, it will probably will result in icreased burning of coal, somewhere. And the California rate payers will ultimately pay an unfavorable rate since the spot price is subject to manipulation. And then California will build more coal plants. And people will not easily forget.
So now a popular idea is that electric cars, or plug-in hybrids, will improve the situation. These are even advertised as 'zero emission' cars. This obvious dishonesty ignores power plant emissions that are directly tied to the car operation.
Furthermore, the general expectation, often mentioned by electric car promoters, is that charging will be done at night when the cost of electricity is much lower than average rates. Apparently, the utilities such as PGE Corp. support a plan to enable special rates for night time charging of car batteries.
So not only is the electric car being set up to cause added power plant operation, much of this operation will be coal fired. It will be even worse for night time charging because that operation will almost entirely based on coal generation. See the page
http://www.miastrada.com/references to see Battelle briefing charts presented at a recent Stanford conference on clean energy to see how generating capacity is managed. It appears from these that coal will be the source of the low cost electricity at night.
Unfortunately, the idea that electricity is a 'green' way to do things, frees car developers of the need to find really good aerodynamic solutions and allows them to feel comfortable with building in high vehicle performance features that are particularly inefficient. An example is the Tesla, where 0 - 60 MPH in 4 seconds is advertised with pride.
Although the climate change and energy dependency problems are becoming quite widely accepted, there are false solutions that will postpone adaptation to ways of doing things that could work.
I am suggesting a plan at http://www.miastrada.com that I believe should be seriously considered. (No goods or services are offered at this site, though I have an interest in Miastrada Corp.)