Yesterday’s announcement by New York City Comptroller William E. Thompson Jr requesting a review of the financial and environmental risks associated with the use of tax-exempt financing for the construction of new coal-fired power plants is the latest in a string of what I would call ‘learning moments’ for the financial sector.
Starting about a year ago, new coal-fired power plants started to look like a pretty bad investment.
First, there was the downgrading of coal stocks by Citigroup’s analysts. Since Citigroup's move there have been 65 coal-fired power plant cancellations, including the USDA’s Rural Utility Services effective moratorium on new coal plants through at least December 2009.
Second, the risk of financing coal plants was underscored by tighter lending guidelines for coal-fired power plants by leading commercial and investment banks as Carbon Principles, dueling shareholder resolutions filed at both Citi and Bank of America calling for an end to of coal financing altogether.
And finally back to the New York City Comptroller Thompson's announcement yesterday. Thompson states that the:
Bottom line folks? Coal is a bad investment.
And here’s the doozy - none of these market signals that coal is no longer cheap even considers the increased cost of coal-fired generation when we add the much-lauded Carbon Capture and Sequestration (CCS) piece of the puzzle.
Let me put that another way: coal is a bad investment just by it’s own self and when you add CCS to the equation, coal not only becomes a whole lot more complicated, but the price gets jacked way up too.
Which is why Mr. Thompson is having a hard time figuring out why in the world tax exempt bonds (supposedly some of the most secure investments in the country) should be used to finance coal-fired power plants.
Because guess what? Yesterday’s ‘sure thing’ is today’s snake
oil.
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