Several weeks ago, I published in my blog that my colleagues and I, power market consultants at Webb, Scott & Quinn, thought the RGGI auction should clear at a price of about $2.00. This was a pretty bold estimate in the face of actual bilateral transactions at the time with prices of about $4.50. Others estimated prices closer to double digits. Actually, the results, released today, show that the 2009 allowance price cleared at $3.07.

We were in the neighborhood. Were we wrong? Well, no…the market participants were! Ok, that’s tongue in cheek.

The point is, RGGI is not a huge, onerous burden for coal-fired generators. At least not yet. But certainly there are implications for power plant valuations. RGGI prices, in my opinion should drift around the $2 (and now up to $3) range in 2009 and should rise about 2% per year for the next 5 years. After that, figure prices to escalate about 4-5% per year as carbon limits are lowered.

RGGI is indeed a real cost. At $3 per ton, a 10,000 Btu/kWh coal plant faces about $3 per MWh. A 7,000 Btu/kWh gas-fired combined cycle faces a cost of about $1.50 per MWh. Not a lot.

On the other hand, these prices will increase power market prices slightly (figure about $1.50 per MWh). Count that as "RGGI Bonus" revenue picked up by all market players, especially nuclear, hydro and renewable players with no RGGI costs.

The implications for generating asset values is minimal, but should be factored in. Power market consultants Webb Scott & Quinn will continue to factor such market parameters into studies.

Jim Letzelter

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