North American power generation construction costs rise 27 percent in last 12 months

From Energy Daily, a report from the CERA conference going on in Houston: The costs that drive the rates that power customers pay have been going up dramatically, according to the new Power Capital Costs Index (PCCI) developed by IHS and Cambridge Energy Research Associates (CERA)…

The index shows the cost of new power plant construction in North America increased 27 percent in 12 months and 19 percent in the most recent six months, reaching a level 130 percent higher than in 2000. The new PCCI — which tracks the costs of building coal, gas, wind and nuclear power plants indexed to year 2000 — registered 231 index points in the third quarter period ending in October, indicating a power plant that cost $1 billion in 2000 would, on average, cost $2.31 billion today.

“These costs are beginning to act as a drag on the power industry’s ability to expand to meet growing North American demand, and leading to delays and postponements in the building of new power plants,” said Candida Scott, lead researcher for the Capital Costs Analysis Forum for Power, a new project of CERA. “As the cost of construction rises, firms may become reluctant to invest in new plants, or delay and postpone these projects, in turn constraining the growth of capacity.”

CERA Vice President and Senior Advisor Larry Makovich said: “These cost pressures are a major strategy issue for power companies, and will affect timing and availability of new plants.”

…”The global power sector is facing heavy strains, with new builds in the Middle East and Asia, and expansions in the United States all occurring simultaneously. Nevertheless, we expect 80-110 GW of power to be built and come on-line over the next five years in the U.S. In addition, many long-lead-time items for coal and fired power plants may be contracted in the next three years.”

“As a result of all of this activity, lead times for engineered equipment has increased up to 50 percent in the last 6-12 months for some items, and as expected, prices have increased,” Scott added. “Overseas sourcing for many components further compounds cost pressures because, as costs of raw materials and shipping have risen, those increases are passed through to projects.”

Looking forward, Scott said: “Unless there is a sudden and dramatic change in the industry, activity and market pressures should keep the PCCI at these levels, if not higher, for the next 12-18 months. After that period, there may be a re-balancing of the industry with either fewer active projects or a greater amount of delivery capacity available, or both.”


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