Illinois Energy… Still Going Nowhere

Since the energy industry has been deregulated the investment level in new electricity generation has dwindled to almost nothing. Firms do spend money retrofitting existing generating plants and keeping nuclear plants online a greater percentage of the time, but these measures generally only keep our existing capacity running and don’t put new plants on line to meet ever expanding demand.

The barriers against new generation are immense. They include:

1) fanatical resistance from environmentalists
2) a regulatory structure that not only doesn’t encourage new generation to be built but allows current owners to profit immensely from the current shortage
3) half baked government intervention that only further confuses the situation by seeming to help the problem while delivering nothing

I don’t think that there is any way to “bet” on the likelihood that new generating plants will be built but if there was such an opportunity it would be easy money to bet that any given proposal will ultimately be abandoned for one reason or another. I am not saying that nothing will be built anywhere, ever, but the odds of a given project surviving to fruition are close to slim and none.

Some recent ways a project can die…

Illinois sits atop massive coal deposits. Unfortunately, most of this coal is considered “dirty” coal so it isn’t used very often, and a lot of the coal that is burned is imported from out West (the Powder River Basin in Wyoming, for instance).

The US government had a”clean coal” project in Mattoon, Illinois from a consortium called “FutureGen” where they were going to develop a pilot generating plant burning coal that would not cause significant emissions. The government was going to chip in a portion of the costs and then private companies would contribute the rest. The government recently abandoned the project on January 31, 2008, citing spiraling costs, causing howls of protest from the community and Illinois lawmakers. Another dead project…

The Wall Street Journal had an article called “Wall Street Shows Skepticism Over Coal” on February 4, 2008 describing how three major investment banks were going to stop funding coal plants unless they were zero emission plants because of the risk of government regulations that would make them un-economical by financially penalizing or flat out outlawing certain types of emissions. This methodology will definitely hurt any new coal plants, especially since the prototype low emissions coal plant (above) can’t find financing when the government is footing a significant portion of the cost.

The federal judiciary recently struck down the EPA plan to “trade emissions” which would allow for the most economic manner of reducing pollutants where companies could buy offsets from other companies rather than having to reduce each plant individually in February. This article describes the ruling which throws a huge wrench in planning and just reinforces the constantly shifting state of the US regulatory “policy” (a term I am using very loosely).

It is hard to overstate how difficult it is to build a new coal plant in the best of circumstances; now the requirements are for you to 1) build a plant that doesn’t emit emissions even though the government can’t figure out how to do it 2) when banks won’t fund it 3) when your future energy policy is unknown.

One Illinois coal plant that seems to be going forward is the “Prairie State” plant that is partially funded by the Illinois Power Agency, a new state agency that is attempting to jump start some new generation state. The cost of this plant is astronomical; $2.9 billion for 1,600 MW (planned, just wait to see what costs balloon to after the usual cost overruns take place and our energy policy zig zags 4-5 times during the construction span). But I’ll take anything and God bless if they are actually able to keep this moving forward at all, since no one else is even TRYING to build any new generation in the State.

Cross posted at LITGM

6 thoughts on “Illinois Energy… Still Going Nowhere”

  1. Also, the major investment banks are looking with jaundiced eyes at any new coal plants–obviously, they are concerned that litigation/regulation could sharply reduce the value of these plants and hence expose them (the banks) to litigation for not doing proper due diligence.

    I am very worried about the situation with electrical generation. It looks like more and more of the load will be carried by gas-fired plants, which means consumers/businesses will pay more per KWH…and then we do run into a nat gas shortage, it will be much sharper and harsher than the various oil shortages, because nat gas is much harder to transport across oceans.

    And even large gas-fired plants, which take advantage of highly efficient technologies like GE’s “H” series turbines, will often be stopped by litigation. This will leave utilities with no other way to keep the lights on than to buy a lot of the relatively-small peaking turbines–these are much less efficient and will put further strain on the nat gas supply.

    This all represents a huge risk for the economy.

  2. I live in Indiana. I know you cosmopolitan Chicagoans look down on us simple minded yokels somewhat. However, I have a simple rule as we can only think about something that is simple, being simple minded. I call it the Indiana simple rule. It applies to various subjects: terrorism, energy production, anything that requires change. I think them Romans actually started it with their “evidence under torture” thingy but I digress.

    For you to change (energy policy, homeland security, whatever) you must first feel pain. We call alot of things pain in this country that are not. The problem is once we feel the real pain thoughtfull planning goes out the window and whatever looks like it will make the pain go away gets applied, whatever it is. That could lead to big problems. That is beyond me however. I am just a simple Indianan.

    Hence the simple Indiana rule.

  3. Uh… I don’t knock Indiana and have worked at most of the utilities in Indiana, from Cinergy (now Duke) and NIPSCO and SIGECO down south. Indiana actually has a much better regulatory policy and cheaper utility rates than in Illinois.

    Any reading of my posts shows that I don’t exactly view Chicago as the best governed city in the USA.

    But I can’t make sense of the rest of your comment, or have any understanding of how it relates to the post at hand.

  4. Carl

    I was being sarcastic. The point was that so much of what is important (counterterrorism, energy policy) is not treated as important due to the fact that we are not hurting yet. We do not explore things like pebble bed nuclear reactors and thermal depolymerization or increasing refining capacity because we can still afford to treat these as play things and dream of the world where power generation will be zero emsission. That fact that we can affort to not build or not even explore says alot. We want someone else to deal with the externalities. We have not felt pain so we can afford to take these stances.

  5. Actually just as important is the increasing age of the energy transmission system and its vulneratbility to being hacked into and disabled.

  6. If you could inexpensively get the information out to people what would the pain be if x,y, or z bit of infrastructure died, I think that the situation would significantly improve. The technology is there. It’s just that nobody’s actually applied it.

Comments are closed.