Sunday, April 13, 2008

Uncertain Future Stifles Investment

One thing that stifles investment is uncertainty, especially uncertainty about future costs.

Here in Arizona, we need more electric generating capacity to handle population growth. In addition, per capita usage has increased because we have bigger homes with fewer people per household. (That's generally seen as an increase in the standard of living.)

The average home that APS serves is about 1,700 square feet, much smaller than most new homes of 2,000, 2,400 or more, said Pete Ewen, an energy economist for the company.

"Over the long term, we still are looking at home size on average increasing," he said.

Bigger homes mean more electricity per household even though the average number of people living in a home has declined, he said.

Each year, APS needs about 280 more megawatts of electricity to meet peak summer demand, and SRP about 250 megawatts. Combined, the amount is equivalent to the output of the Kyrene Generating Station natural-gas plant in Tempe.

Eighty-five percent of that new demand is from new residents moving to Arizona, but the rest is from rising per-person electricity use, Ewen said.

So we're going to need more power. The cheapest way to provide that power is to build coal fired power plants. However, investors are reluctant to build coal fired plants if a carbon tax is possible in the future.

With legislation pending in Congress and other parts of the world to charge utilities for CO{-2} emissions, utility officials are hazy on the future of traditionally cheap coal power.

Companies such as Arizona Public Service Co. and Salt River Project are wary of committing to new coal projects that might seem inexpensive now. New global-warming laws could make those plants much more expensive to operate down the road.

They predict they either will have to pay more for the emissions or pay more for yet-to-be-invented equipment to catch those emissions. Or they could rely on more expensive sources of electricity.

In addition, the uncertainty impacts development on the Navajo reservation.

Navajo Nation leaders are well aware that coal has fallen from favor in thisage of global warming. But to them, plans for a new power plant on the reservation mean more than rising temperatures and climate patterns.

To them it is survival.

The proposed Desert Rock Energy Project in northwestern New Mexico could add $50 million in revenue to their annual budget of about $130 million, excluding government contracts, and bring 1,000 construction jobs and 400 permanent positions to the plant and expanded mine.

To get an idea of what the development would mean to the Navajo Nation, the article notes that:

The jobless rate among the more than 100,000 tribal members living on the reservation is about 50 percent, depending on whether traditional Navajo roles such as gathering herbs are counted as jobs.

It's an understatement to say that attracting industry to the 27,000-square-mile reservation is a challenge. It's likely the largest swath of the continental U.S. without a Starbucks, and long drives into Gallup, N.M., to fill water tanks for homes are common.

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