According to a new index by Cambridge Energy Research Associates:
The cost of building a U.S. power plant has risen 130 percent since 2000, and 27 percent in the 12 months to October 2007 alone.
CERA’s Candida Scott explains most of the implications:
These costs are beginning to act as a drag on the power industry’s ability to expand to meet growing North American demand, and leading to delays and postponements in the building of new power plants. As the cost of construction rises, firms may become reluctant to invest in new plants, or delay and postpone these projects, in turn constraining the growth of capacity.
The real implication for policymakers: It is time to revise utility regulations (as Obama and Clinton both propose) to put energy efficiency on an equal footing (with decoupling and incentives), since it was the cheapest option in 2000, and now is even more cost effective.
The reason for the price rise is straightforward — demand, demand, demand:
“The latest increases have been driven by continued high activity levels globally, especially for nuclear plants, with continued tightness in the equipment and engineering markets, as well as historically high levels for raw materials …”
“The global power sector is facing heavy strains, with new builds in the Middle East and Asia, and expansions in the United States all occurring simultaneously. Nevertheless, we expect 80-110 GW of power to be built and come on-line over the next five years in the U.S. In addition, many long-lead-time items for coal and fired power plants may be contracted in the next three years.”
“As a result of all of this activity, lead times for engineered equipment has increased up to 50 percent in the last 6-12 months for some items, and as expected, prices have increased,” Scott added. “Overseas sourcing for many components further compounds cost pressures because, as costs of raw materials and shipping have risen, those increases are passed through to projects.”
And yet, for all this, CERA expects, “80,000 megawatts to 110,000 megawatts in new U.S. plants to come on line in the next five years.” What a gross misallocation of capital — especially for the coal plants. We simply can’t get new presidential leadership in this country soon enough.