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Capital cost of power plant rises 130 %

A price index of costs related to building coal, gas, wind and nuclear power plants in North America shows the cost of new construction has risen 130% in the last eight years, with 69% of this increase occurring since 2005. The Power Capital Costs Index (PCCI) by Cambridge Energy Research Associates resembles a consumer price index, but measures a fixed basket of cost inputs--equipment, facilities, materials and personnel--associated with the construction of a diverse portfolio of 30 generating facilities in North America. CERA's latest PCCI from late May indicates a 1% drop in the first quarter of 2008. The decrease was driven solely by an easing of nuclear equipment costs, created by high global demand leading to market volatility. The costs for coal, gas and wind plants continue to rise. "The fundamentals that have driven costs upward for the past eight years--supply constraints, increasing wages and rising materials costs--remain in place and will continue during 2008," says CERA's Candida Scott. Wind power facilities have shown the largest price escalation, up 6% since the third quarter of 2007 and 108% since 2000. Gas-powered facilities increased by 3% in the last two quarters and 92% since 2000, like wind also driven by increased demand for turbines and extended delivery times as well as the other fundamentals. The price of coal-fired plants increased by 2.3% in the last six months and by 78% since 2000, with strong international demand for boilers, particularly in Southeast Asia, driving prices. For all new plants, construction has been affected by price increases for labour, engineering and general building costs, says CERA, adding that rising prices for raw materials such as steel, nickel and copper could soon become a more significant inflationary factor. "Renegotiated prices for iron ore contracts and supply disruptions of coking coal raise serious concern for cost increases in steel, in excess of 50% in 2008 if all costs are passed through to the end consumer," says CERA's Paul Bachmuth. CERA is an international energy advisory company based in Massachusetts.

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