Fear of future laws drives energy investment.

Carbon capture
Diagram shows carbon capture scenario.

This story is quite stunning, for it appears to pave the way for serious investment in lower carbon power station investments within the US. Yes, that’s right, the US. Here’s the detail;

New York, 15 March: After cancelling eight coal-fired power plants due to environmental concerns, US utility TXU says it will build two coal gasification plants that will capture carbon.

The announcement came from Dallas, Texas-based TXU and Texas Energy Future Holdings Limited Partnership (TEF), which plans to acquire TXU. TEF was formed by private equity firms Kohlberg Kravis Roberts & Co (KKR) and Texas Pacific Group (TPG).

KKR and TPG stunned the environmental and financial worlds in late February when ā€“ as part of a planned $45 billion leveraged buyout of TXU ā€“ they pledged to cancel eight of 11 standard coal plants the company had planned, reducing the total from 9,000MW to 2,200MW.

That plan had been criticised by large TXU shareholders, including state pension plans, which warned that ignoring the likelihood of US carbon regulation would expose the company to tremendous risk. They suggested coal gasification but TXU executives said the technology was not yet economically viable.

Now TXU and TEF said they “have started the planning process” for two integrated gasification combined cycle (IGCC) plants, which gasify coal, extracting carbon dioxide (CO2) and other pollutants, then burn the gas for power production. The CO2 can be sequestered underground.

Not only does this signal the possibility of the beginnings of a new direction for energy companies taking climate change more seriously within the US, it also shows the importance of venture capital, which often brings with it new ideas and a fresh approach to problem solving. The article also shows that major US shareholders are using their muscle to influence change. Just as interesting, they are using the lawyer angle to drive this change, which is quite often the case within the US. Here it is implied that future laws could make TXU vulnerable if it goes for high carbon technology investments now.

The importance for the two coal gasification plants is the carbon capture technology, which is relatively new. Only one project has the go ahead in the UK so far. More info on carbon capture here.

The source for this article is www.environmental-finance.com, a good site for environment business news.

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This entry was posted in Business, Climate change, Economics, Energy, Politics & Policy initiatives, Technology. Bookmark the permalink.

5 Responses to Fear of future laws drives energy investment.

  1. the Grit says:

    Hi,

    A nice post. However, you fail to follow through to the end. Higher costs and/or less available energy, mean our cost of living goes up. Thus, this is a hidden tax on the American people. Keep in mind that, for the most part, utility companies are Government granted monopolies. As such, they are required to deliver their service at the most competitive price. The story above does not fit that directive. This translates to the consumer being shafted.

    the Grit

  2. Pete Smith says:

    I’m a bit puzzled about the idea of competitive pricing in a monopoly. Competitive with what exactly?

  3. matt says:

    Venture capitalists are about as pure a form of capitalism that you can get. Utilities have been monopolies in the US & UK in the recent past. They still are in most of Europe, France being a good example. Maybe you have French blood in you Grit. You seem to desire the central control that monopolies give. Maybe you desire to control the world … with all your pent up frustration. šŸ˜‰

  4. Pete Smith says:

    I see no obvious signs that consumers are being “shafted”. Residential customers will receive an immediate 10% price reduction, resulting in annual savings of $300 million, and price protection until September 2008.

    http://www.texasenergyfuture.com/documents/releases/TXU_Merger_Agreement.pdf

    The abrupt change of direction in favour of IGCC is clearly down to a radical reassessment of the future of the energy market. From ‘Power’ magazine:

    If you need lots of new baseload capacity fairly soon but presume that CO2 controls are still several years away, you’ll opt for PC [powdered coal] generation and hope to break ground on the new plants so they can be grandfathered in before the new rules take effect. If your planning horizon is farther out and you want to take advantage of some hefty subsidies in the 2005 Energy Policy Act, IGCC may be a better way to go.

    http://www.powermag.com/archive_article.asp?a=26-CS_F1&y=2007&m=january

    Under the 2005 Energy Policy Act, $2 billion dollars worth of loan guarantees at subsidised interest rates were announced in August 2006 to “spur investment in new renewable energy projects like solar and wind, as well as clean coal technologies and efforts that can convert cellulosic biomass into ethanol.ā€

    http://www.energy.gov/news/3904.htm

    The bean counters at TXU obviously couldn’t resist the chance of cheap loans that’ll get paid off by the taxpayer if they default. Perhaps this is where the “shafting” comes in?

  5. Smoky says:

    I have no way of knowing what is to come from th energy industry. I do know I am doing my part to lower those consumer bills.

    Thanks,

    Smoky

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