The latest IHS CERA Power Capital Costs Index (PCCI) shows the costs of constructing new power plants fell an additional 3 percent between January and June, signaling a broader downward trend that has now spread beyond nuclear to all classes of power plants.
The PCCI tracks the costs of building coal, gas, wind and nuclear power plants and is indexed to the year 2000. It now registers 217 index points (down from 224 at the end of Q3 2008), indicating that a power plant that cost $1 billion in 2000 would, on average, cost $2.17 billion today.
 IHS CERA expects downward pressure to continue to build as falling costs work their way through the supply chain. |
The decline over six months was driven primarily by a decrease in costs of construction steel, wire, cables, rebar and asphalt stemming from sharply lower prices for steel, copper and petroleum.
Though the overall PCCI has been trending downward since first quarter 2008, the decline had previously been driven by the fall in nuclear power plant construction costs. That factor masked continued cost escalation for all other types of power plants. This marks the first time in nearly a decade that the costs of nonnuclear plants (coal, gas and wind) have decreased.
“The current 3 percent drop may appear modest compared to the sizable global decline in new construction orders but in this case it represents a true turning of the tide,” said Candida Scott, IHS CERA Senior Director of Cost and Technology. “We can expect the downward pressure to continue to build as falling costs work their way through the supply chain.”
Total construction costs have proven more resilient to the recession than materials pricesup to now, the firm said. Substantial order backlogs have allowed equipment manufacturers to maintain their price position. But as the global order pipeline slows they are likely to pass along lower input costs more aggressively.
Wind power has shown the sharpest decrease at 11 percent due to a combined drop in wind turbine and tower costs and a short-term slowdown in orders. Wind was also the most affected by the current economic and financial crisis, which led to a drying up of tax equity and debt investors. Lower costs for turbines, towers and construction and civils could lead to a continued decrease in costs in the near term.
Costs for combined-cycle and simple-cycle gas plants declined by 6 percent over the six month period as part of the larger trend in declining commodity and bulk materials prices. Reduced demand for power due to the recession has led to a lower number of gas generation projects in the pipeline for North America. That means costs could fall further in the near term as demand for gas turbines declines while companies wait for power demand to recover.
Coal power plant costs fell 6 percent due to declines in both labor and ancillary equipment costs. Costs for coal plants could fall further in the near term as continued uncertainty over environmental policy and higher financing costs cause the slackening of demand for new plants to persist.
The decline in nuclear plant costs slowed over the six month period, falling by 1 percent, due to lower materials costs and additional manufacturing capability for key components. Despite an active pipeline, falling steel prices are likely to push costs down further in the near term.
The PCCI suggests additional declines in costs are likely, particularly as equipment costs further catch up with the fall in materials prices.—David Wagman
Ontario’s surprising nuclear decision
In late June, Ontario shelved its plans to construct the province’s next generation of nuclear power plants. The government said none of the proposals it had received presented suitable long-term energy costs for the province.
The province’s plans had called for a two-reactor plant at the Darlington generating station east of Toronto that would supply between 2,000 and 3,500 MW by 2018.
Ontario launched a 20-year energy plan in 2006 that called for maintaining nuclear capacity at 14,000 MW by replacing facilities as they were retired and doubling renewable capacity, including hydro, to 15,700 MW. Plans also called for eliminating coal-fired generation by 2014.
Half of Ontario’s power comes from nuclear plants that were built by Atomic Energy Canada Limited (AECL) between 1970 and 1990, and the province had earmarked C$26.5 billion ($22.8 billion) to update the fleet.
Ontario has been weighing its nuclear options for months, postponing the final decision several times; the first deadline for bids was back in October 2008.
Taking the nuclear option off the table comes as a surprise, but times have changed since 2006. Where Ontario had been anticipating steady annual growth of electricity consumption, power use in the province has actually fallen off and the trend is expected to continue as the economy struggles to recover.
Meanwhile, the projected cost of nuclear power plants has risen as evidenced by recent estimates for U.S. utilities. Ontario was burned by nuclear cost overruns and delays for the original build-out and is wary this time around.
Three vendors were seeking the contract, AECL, Westinghouse Electric Co. and Areva.
Ontario said AECL’s bid was the only one to meet its objectives but uncertainty about the company’s future was the concern. AECL is in trouble. The Canadian federal government is seeking to privatize the company and restructured it in May but even if it was the hometown team, Ontario said it had no confidence in its pricing or future.
Another problem with AECL’s bid was its plan to sell Ontario a new breed of reactor, one that hasn’t been tested before. The Advanced Candu Reactor, the ACR 1000, is not even completely off the drawing board. It’s no longer a pure heavy-water reactor and uses slightly enriched uranium as opposed to natural uranium used in earlier designs. Building the new hybrid reactor could make cost overruns more likely.
Ontario is the first to open the bidding process to foreign countries but even with promises of jobs for local workers, choosing Westinghouse or Areva is a political hot potato. Westinghouse and Areva based their bids on proven technologies but much of the engineering and development work would be done in either the United States or France.
Province officials intend to keep nuclear energy in their energy future. “Emission-free nuclear power remains a crucial aspect of Ontario’s supply mix,” said George Smitheran, deputy premier and energy minister.
In the U.S. the nuclear renaissance is in full swing. A group that includes Duke and Areva are exploring building a nuclear plant in Ohio and UniStar, NRG, Scana Corp. and Southern Co. will likely share Department of Energy loan guarantees to build new reactors. –Nancy Spring
G8 leaders can’t agree on GHG emissions limits
The eight leaders of the world’s major industrial nations could not agree last month on how to fight global climate change. Negotiators at this year’s summit meeting of the Group of 8 in Italy canned a proposal to cut greenhouse gas emissions in half by 2050. An 80 percent reduction in more advanced countries was also dropped.
Leaders from China and India, both considered developing countries, turned down the plan to cut emissions in half without financial and technical concessions.
All the leaders did, however, agree to set a goal of stopping world temperatures from rising more than 3.5 degrees Fahrenheit from pre-industrial levels.
Developing nations like China and India were also invited to participate in discussions. However, they disagreed with the emissions limits because they want advanced countries to commit to midterm goals by 2020 as well as promise technological and financial help.
Tenaska to negotiate DOE loan
Tenaska said it will negotiate with the U.S. Department of Energy to get anywhere up to $2.5 billion under the Loan Guarantee Program. Size of the loan will depend on final costs of the $3.5 billion Taylorville Energy Center.
The proposed plant will convert coal into substitute natural gas that will be used to generate electricity. It will also capture up to three million tons of carbon dioxide each year. Citigroup Global Markets Inc. was the financial advisor for the project.
The plant awaits final approval from the Illinois General Assembly next spring before it can close on the finance.
Wind project starts early
Construction work is starting a month ahead of schedule on a 150 MW, $300 million wind energy project in Missouri. Developers estimate the project will be done in late spring of 2010.
Wind Capital Group said work on the Lost Creek Wind Farm is a month ahead of schedule thanks to early delivery of wind turbines.The project is slated to be the largest in Missouri.
Arkansas regulators appeal permit ruling
The Arkansas Public Service Commission said it plans to appeal a court ruling that would force a proposed coal-fired plant to start over in its permit process.
The commission said it has asked the state Supreme Court to review an appellate court ruling that said Southwestern Electric Power Co., a business unit of AEP, must start over in its effort to get a permit for the $1.6 billion, 600 MW John W. Turk Jr coal-fired plant in southwestern Arkansas.
The appeals court granted a request from landowners to force the company to start over in the permit process, saying the commission did not follow state law when conducting hearings about the power plant. The court also criticized the utility’s process of choosing a site.
Commission officials said they followed the same procedure with SWEPCO’s application that they have since they received jurisdiction in 1973 to determine who gets the permits.
LS Power wins court appeal
A Georgia appeals court judge reversed a lower court ruling against the developers of a proposed coal plant.
Officials with LS Power, who are developing the plant, won the appeal against several environmentalist groups to build a $2 billion, 1,200 MW coal-fired power plant in Georgia, Longleaf Energy Plant.
Longleaf first applied for a permit in 2004 and it was granted in 2007, according to court documents. GreenLaw appealed the permit and won in 2008 when a trial judge said the permit should have included limitations on carbon dioxide emissions.
The appeals court judge said that decision was a mistake because no other plants in the state have had to do that.
AMP-Ohio contracts for Hitachi power blocks
American Municipal Power-Ohio Inc. gave a contract to Hitachi Power Systems to design and supply two coal-fired steam-electric generating power blocks in a 1,000 MW plant under construction.
The blocks are for the American Municipal Power Generating Station, under development in southern Ohio near the Ohio River. Each power block consists of a pulverized coal boiler powering a steam turbine generator that will use Hitachi’s selective catalytic reduction technology, offering high nitrous oxide reductions over wide operating load ranges.
The boilers are designed to operate at superheat and reheat steam temperatures and higher pressures resulting in higher plant efficiency.
Look to Our Weekly Electronic Newsletter for These Articles
- Obama energy plan “too ambitious”, published July 7
- Ontario shelves new nukes, published June 30
- Constellation wins OK for 1,600 MW, published June 30
- Power plant construction costs fall, downward trend likely, published June 23
- Exelon plans 1,500 MW of new nuclear, published June 16