Kansas has become the ground zero of the fight over the future of coal in America, and by a leading global financial research firm drives a stake through the heart of the strongest argument proponents of coal-fired expansion there have: that coal is cheap.
The groundbreaking report says coal is not the cheapest source of power for Kansas -- or anywhere else, quite likely -- if you account for coming federal regulation of carbon emissions.
Projected to cost $3.6 billion, the two coal plants proposed for Holcomb, Kansas have been touted by its builders, Sunflower Electric Power, to provide the promise of cheap electricity for the state's next generation of citizens. But the independent financial analysis -- surprisingly, the first of its kind -- says otherwise: the new coal plants would be a bad investment that will saddle ratepayers in Kansas with increasing prices they won't be able to control.
The report comes from Innovest Strategic Value Advisors -- a firm that raised the red flag on Bear Stearns last July when the big banks were blinded by the Bear's $150 stock price. Not that anyone listened to Innovest then. Maybe this time, in Kansas, they will.
The game-changer in the analysis is factoring in a modest price for carbon emissions:
Given that Sunflower is a consumer-owned, nonprofit corporation the burden of future carbon costs will be placed entirely on the company’s ratepayers. Assuming carbon prices between $21 and $48, the Holcomb expansion could cost Sunflower ratepayers between $22.4 million and $51.36 million annually.
Furthermore, this report demonstrates that under federal legislation that relies on 100% auctioning of emissions allowances, natural gas generation becomes more economical at a carbon price of $13.20. In general, this analysis indicates that Sunflower has failed to account for likely regulatory scenarios, and will therefore expose its ratepayers to the significant financial exposure associated with a strategic focus on developing new coal capacity.
According to EPA estimates, the leading climate legislation now in Congress -- the Climate Security Act of Senators Lieberman and Warner -- is expected to push the price of carbon well past the switching price of $13.20/ton -- to $22/ton by 2015.
That's only a year or two after the new Kansas coal plants would open for business. That would put them inside a financial hole that only gets deeper with time, as carbon is expected to reach $46/ton by 2030 under the legislation.
The report is sure to strengthen the hand of Kansas Governor Kathleen Sibelius, who has opposed the coal plant expansion, and also to impact other coal plant battles nationally. It starkly illustrates the new financial realities impacting coal-fired power everywhere.
are leading global experts of all things related to carbon risk. The firm has been the research arm of the (CDP), which represents investors with $57 trillion in assets and collects greenhouse gas emissions data from 3000 of the world's largest companies. Innovest has also developed analytical tools and models for evaluating the carbon risk of companies -- intelligence it sells globally for a growing roster of clients.
Innovest concludes that the profile for Sunflower's proposed expansion ought to be cause for concern. At the top of the list of reasons is carbon price:
...significant risks will accompany Sunflower's decision to expand its coal capacity.
The company’s decision to own 150 MW of new coal capacity will increase Sunflower’s annual CO2 emissions by over 1.07 million ton. Depending on the structure of future legislation and the associated price of carbon, the resulting financial impact on Sunflower’s ratepayers could be significant.
Although Sunflower will receive a $25 million management fee from Tri-State, it is unlikely that this will be enough to insulate ratepayers from the costs associated with its increased carbon emissions.....