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Power Measurements

The new Clean Air Interstate Rule is having an unexpected impact on power generation asset values.

Fortnightly Magazine - November 2005

SO 2 and NO x emissions. Along with Calpine, Texas Genco LLC, and Dynegy Inc. represent the largest fossil-fuel generators with the least amount of emissions.

The recently proposed merger between Cinergy and Duke Energy would move the new holding company to third nationally, while the proposed merger of Exelon and PSEG would create the 20th largest emitter nationally.

Which Generating Units Are Most Affected?

Now consider the 25 largest SO 2-emitting generating units (), which are all coal units built during the 1960s and 1970s. In 2004, the group accounted for 14 percent of the nation's electric plant SO 2 and represented nearly 19 percent of the CAIR rule clean-up necessary to meet 2015 standards.

The average size of each unit is more than 760 MW, and during 2004, the group ran at nearly 71 percent of capacity. Based on those parameters, their allocated 2015 emission budgets, and assuming the addition of new emissions controls, the group could generate nearly 50,000 surplus allowances annually by the first year of Phase II compliance in 2015.

Nationally, based on 2004 annual emissions, older units (more than 35 years) emitted 423 times more SO 2 and 33 times more NO x than newer units built since 1999, yet at the same time, these older plants generated only 1.8 times more electricity ().

The newer units are predominately cleaner gas-fired units equipped with state-of-the-art emissions-control equipment. Most of the units operating prior to 1980 are not scrubbed-86.4 percent of the nation's SO 2 emissions are generated by fossil units without emissions-control devices. But this is about to change, as many of the largest emitters in the country are going to announce, or have recently announced, plans to invest in control technologies.

The seeds of the next growth stage of the power generation business cycle are taking shape. Generating companies will need to carefully weigh the costs and benefits of adding emissions controls, expanding their renewable generating portfolio, building new clean-coal generating plants, or securing and banking enough emission credits to comply with the stringent EPA caps.

CAIR already is having an impact on the changing face of power generation asset values, but not in ways most people expected. The prospect of clean-coal technology and clean baseload power generation has created a sense of soberness in the assets market. There may be plenty of gas-fired generation out there, but the prospect of new coal-efficient, coal-fired generation replacing older, dirtier coal units means the race is on to get over the finish line. Is this the start of the construction stage of the next power business cycle? Stay tuned.




1. Renewable Energy: The Bottom Line, available from Global Energy at

2. Power Generation BlueBook, Summer 2005;