April 21, 2008 / 5:38 PM / in 10 years

Arch Coal sees power shortages if plants not built

NEW YORK, April 21 (Reuters) - Electricity shortages are likely in the United States in two or three years unless more coal-fired power plants are built, the head of coal producer Arch Coal Inc ACI.N said on Monday.

“We are heading toward serious shortfalls,” Chairman and Chief Executive Steven Leer said during a conference call with analysts to discuss the company’s first-quarter financial results.

“Much of the United States will fall below the 15 percent reserve level in ‘09,” he said.

Asked about the impact of fewer coal-fired power plants being built, even as electricity demand is rising, Leer said he was constantly meeting with state governors and environmental groups to stress the need for new plants.

”It’s not just coal, all fuels are involved; or two to three years from now we’ll see real issues in power supply.

“The politics of the day will come home to roost in two or three years with the likelihood of electricity shortages,” Leer said. “At the end of the day, the world needs all this coal.”

According to a February report by the National Energy Technology Laboratory, which researches ways to make coal more environmentally friendly, 114 new coal-fired power plants have been proposed, but only 47 are under construction or in the process of getting local authority permits.

Coal has been targeted as a major air polluter by environmentalists, and some states have recently refused permits for new plants or delayed or canceled other proposals.

When the Texas utility TXU was bought out for $32 billion last year, part of the deal included dropping eight of 11 applications TXU had for new coal-fueled plants.

According to the Edison Electric Institute, U.S. electricity generation increased nearly 1 percent year-to-date through the second week of April. Based on internal estimates, Arch believes coal consumption for electricity generation has grown at an even faster rate than overall electric power demand.

Arch estimates that 16.5 gigawatts of new coal-fueled capacity are now under construction in the United States, and will be phased in during the next four years. This build-out will require nearly 59 million tons of new annual coal supply, with 75 percent of that needed before the end of 2010.

Another 8 gigawatts of new coal-fueled plants are estimated to be in advanced stages of development, equating to roughly 25 million tons of additional incremental annual coal demand. (Reporting by Steve James; editing by John Wallace)

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