American Municipal Power Does the Math: Cleaner Energy Can Be Cheaper Energy, Too
Posted November 26, 2009
I now have an extra reason to be thankful this Thanksgiving, with yesterday's unexpected news that American Municipal Power ("AMP") has decided to cancel its plans to build a new dirty coal-fired power plant in southeastern Ohio. AMP's proposal was based on the outdated assumption that burning dirty fossil fuels is the cheapest, most reliable way to generate electricity.
NRDC, along with a number of other environmental and citizens' groups, have been opposed to the AMP coal plant from the start. AMP's plan was dreadful from an environmental perspective. At least seven million tons of carbon dioxide emissions every year for the next fifty years contributing to climate change. More than ten thousand tons of particulate matter, sulfur dioxide, and other pollutants blowing downwind every year and landing in people's lungs. Mercury deposited in rivers, lakes, and streams throughout southeastern Ohio and West Virginia. Millions of additional tons of coal extracted through environmentally destructive mining practices for the next five decades. AMP's coal plant would have placed a heavy toll on Meigs County and surrounding areas that already bear a disproportionate environmental and public health burden.
But the projected impacts of the now-cancelled plant were all the worse because AMP's plan did not make any economic sense.
AMP's strategy for raising the billions of dollars it would need to finance construction of its plant was to first lock in its municipal members into long-term, "take or pay" contracts that would have required them to subsidize construction of the plant, and commit to paying for the electricity it generated, no matter how much it cost. AMP's members - cities and towns across Ohio and in neighboring states - were being set up to bear all of the risk, on the assumption that building and operating this plant would be so cheap that they would all benefit in the end.
When AMP finally questioned its assumption this fall, it realized that its numbers did not add up. For one thing, construction costs for the project rose dramatically over the last four years. When AMP first floated its proposal in October 2005, it estimated that it would cost $1.2 billion to build the plant. Then that number grew to over $2 billion. Then to over $3 billion. By the end of 2008, the construction estimate, including financing costs, had reached $3.9 billion - over twice as much as when AMP first started. Finally, when AMP's contractors came in with a cost estimate that was an additional 37% higher than expected, AMP's members made the wise decision to cancel the plant.
While construction costs were the main focus of concern, increasing operating costs also made the AMP coal plant a bad economic deal. The cost of coal has increased significantly in the past few years. Inevitable climate change regulations will rightly put a price on major emitters of greenhouse gases. And long-overdue federal regulations now in the pipeline regarding the disposal of coal combustion waste, coal plants' discharges of toxic pollutants into waterways, and coal mining will finally begin to force coal plants to internalize their public health and environmental costs.
The energy landscape in the Midwest is changing. Conventional coal plants like AMP's are becoming casualties of a marketplace in which there are better alternatives.
Aggressive pursuit of energy efficiency, renewables, and cleaner fuels like natural gas is the strategy that prudent utilities are following to create reliable sources of electricity that will thrive in a carbon-constrained world.
If you do the math, cleaner energy can be cheaper energy, too.
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