Climate fears, costs threaten coal-fired power plans

By Lisa Lee - Analysis

NEW YORK (Reuters) - When it comes to building more generating capacity, U.S. power companies are in a quandary.

Increasing demand for electricity has prompted the industry to propose construction of more than 150 coal-fired plants. But rising development costs and the prospect of tighter environmental regulations could mean that most of those projects will not get past the drawing board.

Coal, which generates about half the power in the United States, is the nation's most abundant fuel and costs a fraction of cleaner-burning natural gas. It is also more economical and reliable than renewable energy sources such as wind and solar.

"The cheapest available technology right now is the most polluting," said Friedman, Billings, Ramsey & Co. analyst Kevin Book.

Experts say that even under optimal conditions, many of these proposed plants would not be built as companies work through the complicated process of balancing capital spending, energy market price projections and regulatory approvals linked to new projects.

But the rapidly accelerating drive to tackle global warming combined with soaring building costs make construction even less likely.

Coal-fired plants spew out about 40 percent of U.S. carbon dioxide, making them one of the largest producers of greenhouse gases.

As a result, these generators have become a top target of environmental groups and politicians who are advocating new laws that would cap carbon dioxide emissions, the main heat-trapping gas blamed for global warming.

Several states are mulling limits on carbon dioxide emissions, and federal rules, if passed, will make coal-fired plants more costly to run.

"A lot of companies that have coal plants on the drawing board don't know if they can build because of the uncertainty," said Dahlman Rose analyst Daniele Seitz.

In February, TXU cut the number of its planned coal plants to three from 11 under a pact with environmental groups to help win approval of the proposed $31.8 billion private equity buyout of the Texas utility.

Dynegy Inc. (DYN.N) Chief Executive Bruce Williamson told Reuters earlier this month that only one-third of its eight planned coal-fired power plants would probably be built to use that fuel, while American Electric Power Co. Inc. (AEP.N) says it continues its push for four new coal-fired plants.

And North Carolina regulators recently approved only one of two 800-megawatt coal-fired power units proposed by Duke Energy (DUK.N). Even that plant's fate is not certain as it still requires environmental approval.

DUKE DILEMMA

Along with other power companies, Duke has argued that rising demand for electricity will require new generation, even if homes and businesses incorporate new energy-efficiency measures.