Cost to Build Power Plants Skyrockets

By GEORGE HOHMANN

New power plant construction costs seem to be rising fast like the price of oil, which means higher electric bills may be coming soon to a mailbox near you.

The cost of new power plant construction in North America has risen 130 percent since 2000, with most of the increase occurring since 2005, according to an index published Tuesday.

The IHS Cambridge Energy Research Associates Power Capital Costs Index tracks the costs of building nuclear, wind, natural gas and coal-fired power plants. It shows that a power plant that cost $1 billion in 2000 would, on average, cost $2.31 billion today.

The cost of nuclear power plants has increased 173 percent since 2000, while wind power plant costs are up 108 percent, natural gas- fired power plant costs are up 92 percent and coal-fired plant costs are up 78 percent, according to the index.

In comparison, the price of a barrel of oil has increased 162 percent since it reached a short-term low of $50.48 a barrel on Jan. 18, 2007.

"Recent cancelations of proposed coal plants in the United States due to uncertainty over environmental regulations has provided some slowing in cost increases in the U.S. coal industry," Cambridge Energy Research Associates said. "However, international competition for coal boilers, particularly in Southeast Asia, is keeping the equipment order books very active."

The fundamentals that have driven costs up for the past eight years – supply constraints, increasing wages and rising materials costs – "remain in place and will continue during 2008," Candida Scott, a senior director at the company, said in a prepared statement.

Paul Bachmuth, and associate director at the company, said additional factors, such as rising prices for steel, nickel and copper, could soon drive costs higher.

The Wall Street Journal, reporting on the index, said, "The findings are bad news for consumers and utilities alike, and help explain why power-plant development has become something of a quagmire in the U.S. – with no type of plant emerging as a reasonably priced option that can meet rising demand for electricity."

This does not bode well for American Electric Power’s plan to construct two "Integrated Gasification Combined Cycle" power plants. The next-generation plants would convert coal into a synthetic gas that would be burned to generate electricity.

American Electric Power wants to build one 629-megawatt plant in Mason County and another in Meigs County, Ohio. But both projects are in limbo.

American Electric Power had estimated that if its plan to build an IGCC plant in Mason County were approved, its rates in West Virginia would gradually increase a total of 12.4 percent over four years. The typical monthly bill for a residential customer who now pays $65 for about 1,000 kilowatt hours of electricity would increase to about $73.

Separately, Appalachian Power on Feb. 29 asked the state Public Service Commission for a 17 percent rate increase. The utility said 54 percent of that hike would pay for the higher cost of fuel, mostly coal; 32 percent would pay for purchased power; 11 percent would help pay for scrubbers at the John Amos and Mountaineer power plants; and 3 percent would pay for other improvements. The request is pending.

Appalachian Power’s last rate increase was a 10 percent, effective last July.

Only one coal-fired power plant is currently under construction in West Virginia. It is the 695-megawatt Longview plant in Monongalia County. Ground was broken in early 2007 for the $1.83 billion dollar plant – the first coal-fired plant built in West Virginia since 1993.

Charlie Huguenard, Longview Power’s general manager, said the plant is being built under a fixed-price contract, "so our prices were locked in with our contractors. And that is holding."

Huguenard said Longview’s owners went to a fixed-price contract because they saw costs escalating, similar to the increases reported by the IHS Cambridge Energy index. "Concrete and metal prices have been going up – it’s a scary thing," he said.

About $691 million has been spent on Longview to date and the plant is about 30 percent complete. It is expected to begin producing electricity in January 2011.

Contact writer George Hohmann at business@dailymail.com or 348- 4836.

Originally published by DAILY MAIL BUSINESS EDITOR.

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