Investors Warned About Coal Expansion

A project to greatly expand coal power generation in Nevada will be too costly and hurt stockholders, according to investment consultants Innovest Strategic Value Advisors.

The investment company says Sierra Pacific Resources, which currently generates 18 percent of its power from coal, would add 11.5 million tons of CO2 annually by building a 1,500 MW plant in Ely. According to Innovest, while most utilities are moving away from coal, Sierra Pacific is taking a step backward with coal, and the risk of likely carbon taxes or carbon caps outweigh the short term financial benefit.

"The company’s failure to incorporate climate related risks and opportunities into its strategy will create significant financial risks for shareholders and ratepayers.” The company says the annual cost of CO2 production at the Ely facility could be as high as $635 million.

Innovest says consumers should also be wary as the increase in the cost of electricity in Nevada has more than doubled the national average during the past eight years. However, while Sierra Pacific has a checkered environmental record, the company has made a power purchase agreement with Acciona Solar Power, so they have to be given some credit for beginning to diversify.

Innovest along with many financial institutions are warning against investments or loans for coal plant expansion. Statements like these drive the perception that coal stocks are a bad investment, which can be sufficient to lower interest on Wall Street, which reduces shareholder value, thus fulfilling the predictions. Since the Innovest announcement on Tuesday, however, Sierra Pacific Resources' stock has actually gone up slightly.

Coal is on the outs with politicians as well. As the Earth Policy Institute points out, between the governor of Kansas denying new coal plant permits to the proposal for a national moratorium on coal plants using current technology, the cost of expanding coal is rising sharply. That's one way to make renewable power such as solar and wind more cost competitive.

The Nevada Public Utility Commission however might be suppressing growth in solar in the state by denying companies the right to lease solar panels or sell power to homeowners. Stoel Rives, one of the leading law practices in energy and environment law, says that the PUC will soon decide whether companies that want to lease space on rooftops and sell the power to the property owners can do so without registering as a utility. If the PUC declares anyone who wants to sell power is a utility, it would chill attempts to generate distributed power in state and slow the emerging business model.