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American Municipal Power Does the Math: Cleaner Energy Can Be Cheaper Energy, Too

Thom Cmar

Posted November 26, 2009

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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  AMP's proposal was based on the outdated assumption that burning dirty fossil fuels is the cheapest, most reliable way to generate electricity.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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MatthewNov 27 2009 10:29 AM

Plus, AMP spent $200 million of its members to figure this out. Let that be a lesson to others!

Gerard Gilbert VaughanNov 30 2009 12:54 PM

I would like to say that many people - including the designers of modern (80m high) "windfarm technology" do not appear to be aware of some fundamental facts concerning that pursuit, viz:
The cost of facing a given area of weather is a necklace-shaped function of the Size of the Turbine-Alternator Devices - TADs - deployed. This is because we pay for Volume of materials in order to get Area of weather faced. T cost/m^2 is therefore proportional to size of T. Meanwhile One large A costs only half as much as the 4 which it stands-in for if we double the size, for instance. The lowest cost is for sizes where the T costs about the same as the A. This happens at around One Metre diameter. Just under this and the gearbox becomes 1:1 i.e. it disappears !
A very good design at about this size returns about 50 x the % of cost p.a. that current "technology" achieves. Please email for further info.
G. Gilbert Vaughan, Celo Nikiup, Bulgaria

SethDec 3 2009 05:47 PM

The NRDC position on AMP-Ohio's coal plant is loaded with irony. One one hand, it asserts (incorrectly) that AMP-Ohio had the ability to to lock its members in to "take or pay" arrangements to fund the new supply side option and that "take or pay" is a bad business model for customers. Yet NRDC is proposing that the same thing be done in Ohio and many other places in the case of demand side options.

If customers should be free to make their own technology and supply/demand choices on how to best meet their energy needs, then it is not appropriate to impose take or pay obligations on customers to suppoprt the technologies or approaches that NRDC seems to like.

If the demand side options are cheeper, then customers will move to the cheeper alternative.

If you want to give energy efficiency and "renewables" a bad name, there is no quicker way to accomplish this objective than mandating that this be done through electric utilities subject to the supervision of regaultory authorities.

NRDC is not consumer-friendly.

Dylan SullivanDec 4 2009 04:15 PM

“Take or pay” is a bad business model for consumers because the item customers are paying for is a coal plant that is hugely expensive, laden with risk, and environmentally destructive. Utilities – both investor-owned and municipal – make decisions on behalf of their customers about energy technologies all the time. The key is making these decisions in light of the costs and benefits customers receive from each resource choice.

This is exactly how energy efficiency programs are designed: they are only approved if they can save energy at a price cheaper than the cost of energy from the next generating unit that will likely be constructed. Programs that encourage the implementation of efficient technologies and practices – from home retrofits to industrial process improvements – save customers money on their electric bills now and prevent the construction of expensive new generation like the AMP-Ohio coal plant in the future. Consumers, the economy, and the environment all benefit.

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