Monday, February 26, 2007


Coal loving Texas utility (TXU:NYSE) is being bought out. This is expected to result in plans for the construction of twelve coal plants being scrappred. Three may still be built but this is 
uncertain given the high risk of coal in the rapidly changing olicy environment. 

There are many reasons for not building more coal fired power plants in Texas. For economic, environmental and health reasons it would be a bad move for the state. From the investors point of view it would also be risky.

A recent report by investors group CERES finds that:

"TXU’s investors – whether as public shareholders or private investors – will face a multitude of financial risks if the company moves forward with its plans to build 9,000 megawatts of pulverized coal-fired capacity. The report cites construction cost over-runs, burdensome regulatory costs as climate regulations take hold and a slowing of power demand in Texas as state legislators aggressively push energy efficiency and other energy-saving programs. The 11 coal plants that TXU proposed to build are among more than 150 coal-fired power plants currently proposed across the United States. As with TXU, most of these generating facilities would be built with no technologies or controls for capturing carbon dioxide, a primary contributor to global warming.

The report concludes that all coal-fired power plants present wide-ranging financial risks for investors, including to shareholders of power companies as well as to banks financing the projects. But the TXU proposal, which planned to add more coal-fired electricity capacity than has been built in the entire U.S. in the past 10 years, is considered especially risky for investors due to the project’s sheer magnitude and because TXU operates in a deregulated market, where risks are borne primarily by shareholders and other investors instead of ratepayers."

On the news of this latest buy ou coal shares took a knock.

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