GREAT FALLS, Mont. — As workers scramble to build an $800 million coal-fired power plant on a patch of farmland here, a crisis that began on faraway Wall Street threatens to stretch the nation’s power supplies to the brink — driving up prices and laying the stage for future shortages.
The power industry is under extraordinary financial pressure just five years after North America suffered its worst blackout ever, when rolling outages turned out the lights on 50 million people. Even before the extent of the global credit crisis was fully known, the nation’s largest power providers warned of even bigger blackouts to come with the power grid under ever growing strain.
The industry has faced criticism for blackouts, but it also faces opposition to new new plants and stringing new power lines.
With the economy teetering toward recession, it may face its toughest obstacle yet.
If credit woes put the brakes on scores of proposed plants, observers say a shift to other, more expensive fuels could end up soaking customers. The alternative is more frequent and potentially extended outages.
“We have to have new (power generation) capacity at some point, or we’ll have brownouts, blackouts,” said Mary Novak, an economist with Global Insight, a consulting firm. “The problem is, too many (utilities) are betting on delay.”
For Montana’s 250-megawatt Highwood plant, a Nov. 30 regulatory deadline forced developers to start building with only enough cash to lay the concrete foundation. If additional financing fails, the electric cooperatives behind the plant will have to get their power from the more expensive open market — with customers footing the bill.
“It’s not without risk and a lot of anxiety,” John Prinkki, a Southern Montana Electric cooperative board member, said of breaking ground on the project. “But we’re between a rock and a hard place. We don’t have any choice — people are using more power than they ever have before.”
Utility representatives insist their projects still deserve financing. Yet even before the credit markets froze up, the industry had delayed dozens of coal plants, over climate-change pressures and construction costs that effectively doubled in recent years.
Those cost spikes have reinforced the power industry’s position as one of the most capital-intensive in the economy. Before the crisis, investor-owned utilities had plans to spend upward of $1 trillion in the next two decades on new plants, transmission lines and maintenance of the power grid, said Richard McMahon with the Edison Electric Institute, a utility industry association.
Whether they get that money depends largely on the economy.
The Department of Energy had forecast earlier this decade that 36,000 megawatts of new coal-fueled power supply — enough to power an estimated 36 million homes — would come online by 2008. Instead, only about 5,000 megawatts of supply were built, or enough for about 5 million homes.
The converging pressures on the industry make the duration of the tight credit market critical to its long-term outlook, said Todd Alexander, a New York lawyer who advises plant developers on financing.
Over at least the next several months, Alexander said everything from coal plants to pipelines to wind farms face an uphill battle to seal deals on debt. He added that could quickly turn around if the markets loosen in the first quarter of 2009.
Inside the issue
POWER CRUNCH: Utility industry representatives say new power plants are needed to compensate for thinly stretched electricity supplies.
THE ISSUE: The credit crisis on Wall Street could further delay new plants already beleaguered by climate change concerns and soaring construction costs. Over the past two years, 76 new coal plants were delayed.
HITTING HOME: If too many utilities opt to put off projects, Americans could face higher electric bills and future blackouts or brownouts. However, pressures on utilities could be offset by declining demand for electricity.
