RWE CEO says new coal-fired projects "on hold"

COLOGNE, GERMANY - RWE Power, a subsidiary of RWE AG, one of Europe's leading energy companies, says that building new coal-fired plants is no longer economically feasible.

Speaking at the Power-Gen Europe 2009 conference in Cologne, Germany, Dr. Johannes Lambertz, President and CEO of RWE Power, announced that new coal-fired power plants are now too expensive to build because of a combination of rising construction costs, fluctuating electricity and fuel prices in a liberalized marketplace, and the cost of implementing carbon capture and storage (CCS) technologies.

"Fundamentally, most plant builders and the plant supply sector now have to cope with two main challenges: first, meeting climate protection goals, and second, sustainably investing in the liberalized market. The new build program in many places is not running as smoothly as all of us would like, and we will only make progress by dialogue. The new-build phase for coal-based plants has stagnated," said Lambertz.

Using what he called his "new-build barometer," Lambertz outlined the various market factors that led to his claim that the new-build market is now effectively on hold.

"The truth is that in a liberalized market, investment in new power stations is only feasible if the full cost of the plant can be earned back on the market. Based on current price, we can see the full cost of new hard-coal-fired power plants is around 68 euros per megawatt hour. In addition to the variable cost of fuel and CO2, we must include the fixed cost of 25 euros per megawatt hour for operation and capital employment. Only when all costs can be covered is investment in such a plant worthwhile. To cover the fixed cost of a new plant the electricity price on average must be higher than the plant variable cost. Until February last year, the comparison still looked promising. Today's market is in a 'hold phase' in which the benefit from investment does not appear to be worth the expense."

Coal, he maintained, will continue to remain a very important part of the energy mix for decades to come, however. "When you consider the entire replacement and additional capacity needs by the markets in America, Europe and Asia, it makes it very clear that coal-based power plants will continue to play a significant role in the worlds energy mix for the next five decades."

Lambertz blamed much of the problem on a massive leap in the cost of building a new plant in the last few years, something he believes the current economic crisis might help resolve. "Since the liberalization of the energy sector and the upcoming building boom after 2007, we observed the price explosion for coal plants. We experienced a rise in price of some 30 to 40%. Given these underlying conditions the decision to build is no longer feasible."

Lambertz added, "The call to action here is to get prices down to a reasonable level. New plants where prices don't pay off in a liberalized electricity market are simply not an option. The economic and financial crisis will enable plant prices to come down to a lower level again."

Despite his dismay at the spiraling costs of building new coal-fired plants, Lambertz said he was happy with how the European Union was supporting the development of CCS technology. "We do have a positive view of the support for CCS technology by the E.U. Not only has a practical legal basis been created but the proposed funding can support further development to help us lead the market in this important climate-protection technology."