Legalectric

Wall Street finally gets what the DOE’s been saying forever: IGCC IS TOO RISKY FOR PRIVATE INVESTMENT!

The DOE, in its Mesaba Notice of Intent, said specifically, expressly, that IGCC is too risky:

DOE Notice of Intent — “too risky”

And here’s a report on Wall Street’s awakening:

Investors warned against coal-to-gas power plants

By JEFF MONTGOMERY, The News Journal
Posted Wednesday, May 16, 2007

A proposal to build a coal-to-gas power plant in Delaware was dealt another blow Tuesday, this time by Wall Street.

One of the world’s top credit rating agencies cautioned that next generation coal gasification power plants remains unproven and a “clear risk” to investors, a position that could raise questions about the financial viability of a proposed coal-to-gas plant here.

The warnings were part of a wide-ranging report by Standard & Poor’s on the financial risk that climate change poses to financial markets, investors and industries.

Delaware policymakers are expected to decide next week if they should tie Delmarva Power’s future to NRG Energy’s proposal for a more-than $1.5 billion coal-to-gas project at the company’s Indian River power plant. The Delaware Public Service Commission could require the utility to sign a long-term agreement to purchase power.

“The risk is immediate and clear, in the sense that the technology is unproven and it’s not clear how well they would run three years from today,” said Swami Venkatraman, a utility analyst with Standard & Poor’s. Gasification developers are likely to have trouble even getting firm construction prices from builders, Venkatraman said.

Venkatraman was speaking generally about risks to companies and industries, not about specific projects or companies. The review touched on major industries worldwide, from utilities to autos and insurance.

“We are more confident that climate change is happening, and we are more confident that it will be of significant cost, but the cost of remediation remains very uncertain because we don’t have the technology yet,”said Standard & Poor’s Chief Economist David Wyss.

Wyss referred to warnings that human use of fossil fuels and other activities has increased carbon dioxide and other “greenhouse gases” in the atmosphere, increasing global temperatures and triggering changes in climate. Estimates of the potential cost have ranged as high as a catastrophic 20 percent loss of the world’s gross domestic product to far less damage, even a gain, if governments act promptly.

Standard & Poor’s assigns companies a credit rating based on their financial outlook and an assessment of risk they face. A lower credit rating raises a company’s cost of borrowing money for a project.

Existing concerns

Greenhouse gas worries have been prominent in recent state and Public Service Commission reviews of bids for proposed long-term contracts between Delmarva Power and three power plant ventures.

State lawmakers ordered the bidding last year, saying the competition could help stabilize prices and energy supplies.

The PSC last week recommended that Delmarva negotiate with an offshore wind power venture developed by Bluewater Wind LLC. But commissioners also encouraged consideration of a Conectiv natural gas plant or NRG’s project as a backup.

A final vote, involving the PSC and three other state agencies, could come as early as Tuesday.

Philip Cherry, a Department of Natural Resources and Environmental Control policy manager who has represented one of the voting agencies, declined to predict an outcome.

Cherry said that uncertainties in NRG’s gasification plan had already earned it a third-place ranking in a three-way race, despite hopes by some that the technology would allow clean use of America’s abundant coal resources.

NRG spokeswoman Lori Neuman said that other experts have concluded that coal-to-gas plants are financially viable sources of clean energy.

“We know there will always be opposing viewpoints on any technology,” Neumann said, adding that the company stands by coal-to-gas “as a source of reliable and environmentally responsible energy.”

PSC consultants ranked the NRG plan lowest overall because of cost and financing concerns. But the full commission last week directed Delmarva to negotiate with all three bidders to develop a wind project backed up by natural gas or coal gas power.

“Clearly, they [Standard & Poor’s] need to be listened to. They’re right in some respects,” Cherry said. “There are no commercially operating IGCC [coal gasification plant] facilities that are sequestering carbon right now. That does pose some difficulties for the industry.”

Gov. Ruth Ann Minner also has said that the coal project deserves further consideration, while not endorsing the idea.

The need for change

John M. Byrne, who directs the University of Delaware’s Center for Energy and Environmental Policy, said that the insurance industry already had arrived at the conclusions that Standard & Poor’s outlined Tuesday.

“It’s an important step. It suggests that we’re no longer discussing ‘if’ there’s climate change, but how we’re going to reflect it in the market,” said Byrne, who has worked for years with a scientific advisory panel to the United Nation’s Intergovernmental Panel on Climate Change.

Standard & Poor’s said Tuesday that the European Union’s focus on the “carbon intensity” of energy would continue to spur investment in renewable sources, including wind power. Major decisions lie ahead for utilities on emissions targets and methods for reducing carbon dioxide pollution.

Standard & Poor’s Damien Magarelli said insurers have already begun taking climate change risks into account, in part after seeing a “wake-up call” in the large number of high-intensity hurricanes during 2005.

Byrne, who recently helped develop a proposed “sustainable energy utility” that would help state residents reduce electricity use, said that the U.N. climate panel is calling for a 60 percent cut in carbon dioxide emissions from 1990 levels during the next few decades. That goal will be reached with both cleaner energy and actual cuts in consumption nationwide, he said.

“The real policy challenge we all have is how to make it possible for all sectors of our society to use substantially less energy” while still meeting social and economic needs, Byrne said.