The world’s most powerful financial institutions are moving to consider the cost of carbon as a fundamental part of their business and lending models. Citi, JPMorgan Chase and Morgan Stanley recently announced that they are adopting “
carbon principles,” which are climate change guidelines for advisors and lenders to power companies in the U.S. The drafting of these principles was the first time that banks, power companies and environmental groups have come together to develop a process for understanding the carbon risk for power sector investments.
Shortly after the carbon principles were declared, Bank of America announced that they would assess the cost of carbon in their risk for loans to power companies. Bank of America anticipates that soon, a carbon tax will be assessed or a CCS will be required. They estimate that the cost of carbon will fall between $20 - $40 per ton of CO2.
Banks willing to finance cleaner technologies
The bad news is that significant costs will be imposed on power producers already reeling from recent changes in state, regional, and federal regulation regarding NOx, SO2, particulates, mercury, and CO2, on top of unprecedented fuel cost increases.The good news is that banks may be willing to work with generators to finance investments in emissions control and efficiency improvements. Bank of America’s Chairman and Chief Executive Officer, Ken Lewis, stated that “These projected costs for carbon emissions will also mean that the financial services industry must work with traditional utility clients to finance the development of cleaner technologies.”
Efficiency gains improve generators’ financial position
Improving efficiency reduces power generators’ operating expenses and enhances their financial and competitive position. Optimization is the most cost-effective means to improve efficiency, and several optimization technologies simultaneously improve reliability and commercial availability.
A few years ago, NeuCo’s optimizers were saving customers at coal-fired plants roughly $1.50 for each mmBtu avoided through efficiency enhancements. Now, that same mmBtu is worth $4 - $8. Today, NeuCo’s four commercially-available optimizers can collectively improve heat rate by roughly 1.5-2.5 percent. That means that a 350 MW plant burning 1.7 million tons of coal each year could avoid roughly 108,000 tons of CO2.
Even at the low-end of the $20 - $40 range posited by the U.S. banking industry, this would equate to more than $2 million per year in annual CO2 benefits. Considering that this same unit would obtain less than a three-month payback from currently monetized emissions, efficiency, and availability benefits, these recent financial developments make investment in optimization an even more obvious first step toward coping with the large and mounting regulatory and competitive pressures facing fossil-fired electric power generation assets.
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