The report concludes that coal is losing its appeal as a predictable investment and is instead fraught with uncertainty.

ICCR unveiled the report today at a special briefing for the New York Society of Security Analysts (NYSSA) in New York City. Entitled Dont Get Burned: The Risks of Investing in New Coal-Fired Generating Facilities, the ICCR analysis notes: Until the 1970s, building new nuclear power plants appeared to be a relatively low risk investment because construction and operating costs were relatively stable and easy to predict.

However, starting in the 1970s, the costs of building new nuclear power plants began to spiral out of control. As a result, the actual costs of new plants were two to three times higher than the costs that had been estimated during licensing or at the start of construction ...

The report continues: This history of nuclear investments is important because investments in companies that are now proposing to build new coal-fired power plants face comparable risks and uncertainties:

(1) The likelihood of federally-mandated reductions in greenhouse gas emissions leading to high costs for carbon-emitting resources;

(2) state mandated reductions in greenhouse gas emissions and the adoption of policies promoting increased use of energy efficiency and renewable resources that will reduce the need for new power generation and adversely affect the relative economics of proposed coal-fired power plants;

(3) the uncertainties surrounding the technical and economic viability of carbon capture and sequestration for pulverized coal-fired power plants;

(4) skyrocketing plant construction costs and delayed construction schedules as a result of the worldwide competition for power plant design and construction resources, commodities and equipment; and

(5) more stringent regulation of the current criteria pollutants.

The ICCR report concludes: Coal has played a major role in the electric industry, serving as the source of more than half of this countrys electricity for decades. However, in recent years, a seismic shift in the understanding of energy use and its impacts, coupled with rising power plant construction costs, have exposed coal to shifting circumstances and greater risk. As a result, coal is losing its appeal as a predictable investment and is instead fraught with uncertainty.

Interfaith Center on Corporate Responsibility Energy and Environment Program Director Leslie Lowe said: Coal is an increasingly risky long-term investment. More than 20 proposed coal-fired power plants were cancelled in 2007 and three dozen more were delayed. An increasing number of companies have announced more generally that they will not seek to build any new coal-fired power plants at this time, and some state regulators are beginning to reject coal plant investments as too risky and ill-timed for current circumstances.

Synapse Energy Economics, Inc. Senior Consultant David Schlissel, the reports lead author, said: Historically, coal-fired power plants were a relatively stable and safe investment. But thats no longer true. Today, investments in coal-fired plants carry far more risk, especially because of the likely regulation of greenhouse gas emissions and rising construction costs. As a result, investors in both regulated and merchant companies cannot be assured that they will recover and earn reasonable returns.

KEY REPORT FINDINGS

-- Expected federal regulation of greenhouse gas emissions will affect the ability of coal to compete. The electric industry is facing a period of unusual regulatory uncertainty because we are in transition to a new paradigm. Scientific consensus indicates that emissions of greenhouse gases jeopardize current biological, economic and social systems.

It has become clear that greenhouse gas emissions must be reduced, and scientific evidence indicates that reductions of at least 60-80 percent below current emissions will be necessary by the middle of this century to avoid the most dangerous impacts of climate change.

ederal regulation of greenhouse gases has become a certainty; and, as a major source of greenhouse gas emissions, the electric sector will be one of the primary affected sectors. Though federal regulation of greenhouse gases is certain, program elements remain undecided, with major issues such as stringency of reductions and distribution of emissions allowances still undecided.

-- States are taking a harder look at coal. While federal regulation is still under development, an increasing number of states are beginning to take specific and concrete actions to reduce greenhouse gas emissions from the electric sector and to increase reliance on energy efficiency and renewable resources.

Regional efforts to reduce greenhouse gas emissions also have been undertaken by states in the Northeastern, upper Midwest and Western areas of the nation. These state regulations and policies will affect the competitiveness of coal-fired power generation and could also modify the demand for new resources.

-- Construction costs and schedules are unpredictable and increasing. Uncertainties surrounding coal extend beyond regulatory and technological issues. These uncertainties are compounded by the worldwide competition for construction resources and materials. This competition for power plant design and construction resources, as well as for commodities and equipment, result in prices spiraling upward with unpredictable costs for plant owners and investors.

Several power plant developers have cited these factors in explaining capital cost escalation in specific power plant projects. For example, according to Duke Energy Carolinas, new coal-fired power plant capital costs had increased approximately 90 to 100 percent since 2002. A large number of projects have announced significant construction cost increases over the past few years. Industry research indicates that capital costs have increased more than 50 percent in the past three years.

As a result of rising capital costs, construction firms are no longer willing to commit to fixed-price contracts, instead shifting the risks of higher prices to plant owners. Regulatory uncertainty, due to the possibility that state rate regulator will disallow construction or operating costs, results in further risk exposure to power plant owners and investors.

-- The economics of new coal plants will be further affected by tighter regulation of non-greenhouse gas emissions. Coal-fired power plants will also be affected by further restrictions that are either pending or proposed on NOx, SO2, and Mercury emissions.

The Clean Air Interstate Rule includes a cap and trade mechanism to reduce emissions of NOx and SO2 by plants in eastern states to approximately 70 percent and 60 percent below 2003 levels once fully implemented. A companion rule, the Clean Air Mercury Rule, targets coal-fired electric plants with goals of attaining 70 percent reductions from 2003 levels once fully implemented. In addition, revisions to EPAs primary and secondary ground-level ozone standards are pending.

-- Capture and storage technology is not commercially viable and may not be for years, or even decades. Several companies have decided to delay investment in new coal until there is a carbon solution.

As such, future investments in coal plants hinge heavily on expectations of the availability of carbon capture and storage (CCS). It is likely to be many years before CCS becomes technically and economically viable. Due to the immaturity of CCS, any claims that a plant is carbon capture ready is only a vague promise.

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