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With compliance costs estimated at $50 billion to $60 billion during the next 15 years, the Clean Air Interstate Rule (CAIR) affects just about every market participant in the electric power industry.

Every significant power generator will add scrubbers and NOx controls, or will invest heavily in emissions technologies. American Electric Power Co. says it will spend about $5 billion retrofitting its coal plants, while the Tennessee Valley Authority says it will add $4 billion to $5 billion to the nearly $4 billion it has invested to date in emissions controls. Southern Co., Cinergy, Duke Energy, and Progress Energy also will add emissions controls to respond to these new regulatory requirements.

Global Energy Decisions forecasts that about 52,000 MW of renewable capacity will be built by 2020, at a cost of $53.4 billion, to comply with the renewable portfolio standards adopted by 20 states and the District of Columbia. ¹ Renewables of this order of magnitude can have a material effect on reducing emissions. With the Energy Policy Act of 2005 extending the federal production tax credit (PTC), wind capacity is expected to more than quadruple during the next five years alone.

Changing Asset Values

Global Energy's Power Generation BlueBook, ² which tracks changing generation asset values, found overall asset values across North America were down 5 percent compared with winter 2004-2005 results. While the value change varies by region, plant technology, and fuel type, this downward change in value is driven primarily by our long-term market view, and the assumption that more new coal-fired generation will enter the market in response to sustained higher gas prices. Once power prices revert to an equilibrium level, it will be at a slightly lower price level than previously forecasted. The abundance of these newer, state-of-the-art assets greatly decreases the value of older, smaller, and less efficient coal-fired units.

SO2 and NO x allowance prices have increased dramatically since the CAIR rules were announced in March. In May, average trades for SO2 and NOx were $840 and $3,300 respectively, and SO 2 allowance prices were four times higher than the same period a year ago.

Even coal generators are getting in on CAIR, proposing more than 37 GW of new coal projects. More than 15 GW would be clean-burning coal gasification and fluidized bed technologies, according to Global Energy's New Entrants project tracking service, and the prospect of new coal-fired generation already is having an impact on the value of power-generation portfolios.

Given the convergence of new CAIR regulations, state renewable energy standards, and the changing value of generation assets, Global Energy projects more than $100 billion will be invested in emissions controls and renewable energy projects nationwide during the next 15 years. This does not include additional investments in new clean-coal and long-term nuclear power projects.

CAIR Speeds Up Process Of Change

The CAIR rulings affect 28 Eastern states and the District of Columbia. The map in Figure 1 illustrates the amount of annual