In Paducah, More Discontent, and a Ratings Watch; Skepticism in Australia; Indian Solar Cheaper Than Coal

FITCH RATINGS HAS PLACED PADUCAH POWER SYSTEM (PPS) on a ratings watch for its “constrained financial position” and “charged operating environment,” factors the agency says  “could limit the system’s return to stability.”

“An October 2014 rate freeze that remains in effect exacerbates PPS’s financial challenges,” says a note published by Fitch on Monday afternoon.

It includes this passage: “Inadequate rate recovery has weakened PPS’s financial position over the past five years, commensurate with its shift to owning and operating generation assets. Base rate increases from November 2012-April 2014 aligned with PPS’s cost of service have not sufficiently supported system metrics at previously projected levels.”

The Fitch note suggests that PPS is in no position to use rate increases to alleviate its finances because it serves a population with “below average wealth and employment indicators” and because its rates are already so high, “equal to 141 percent of the state average.”

Meantime, the Paducah Sun is out with another fiery PPS editorial this morning, this time on the heels of an article last week in the Bond Buyer that chronicled the PPS mess and reported on how the utility may not be able to make its debt payments.

PPS core problem is that it is tied to an expensive, long-term contract with the coal-fired Prairie State Energy Campus, an underperforming plant created by Peabody Energy to buy coal from a Peabody mine across the street.

The Sun editorial is aghast at indications by PPS that the utility’s goal is to keep rates from going up rather than grinding them down.

Excerpts:

  • “We suppose you have to start somewhere but in the end just stabilizing rates is not enough.”
  • “If businesses start shutting down, or leave the city because rates are prohibitive — as is already beginning to happen — a sort of death spiral begins, as fewer and fewer customers force the utility to keep raising rates to make ends meet.”
  • “The magnitude of this crisis is hard to overstate.”

The editorial concludes that PPS must find a way to reduce its debt, and that a solution may yet entail bankruptcy.

Here’s the full Fitch statement.

Here’s the Sun’s editorial (subscription required).

 

ALJAZEERA HAS AN ARTICLE TODAY QUESTIONING AUSTRALIA’S COAL-PRODUCTION POLICIES and its leadership’s deep resistance to change.

The piece, by Nigel O’Connor, includes an overview of how Australia’s top politicians remain staunch advocates for coal-mining being the economic engine of the country, but notes that resistance is growing, and that a case is being made for the financial weakness of such arguments.

Excerpts:

  • “Despite the coal rush, prices are at five-year lows, having halved since 2011. In Australia, miners are tightening their belts — shedding hundreds of jobs in recent months in search of efficiency gains — but remain set to triple production by the decade’s end.”
  • “Australia’s politicians should take a deep breath and look for other options,” said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis.”
  • “Realistically, there will be no recovery of coal prices in the foreseeable future, and a response other than one that produces more of something that’s not profitable is required.”

Here’s the full article.

 

RESEARCH BY IEEFA IS CITED ALSO IN AN ARTICLE POSTED THIS MORNING on The Climate Group’s website under the headline “Low Auction Bid Prices Show Solar Cheaper Than Coal in India.”

The article reports on “remarkably low-price bids” at an auction of 500-megawatt grid-connected solar projects in Andhra Pradesh in October. The oversubscribed auction drew 63 bids for 1,291 megawatts, according to  Indian newspaper Business Line,

Excerpts:

  • “Earlier this year, research from the Institute of Energy Economics and Financial Analysis (IEEFA) suggested it is cheaper to build solar facilities because they have lower PPAs (power purchase agreement), with zero fuel costs.
  • “This is in strong contrast to the cost of building a new coal-fired generation plant using imported coal, of which PPAs are nearly double the average sales price of electricity across India.”
  • “According to IEEFA analyst Tim Buckley, although there is a possibility of the price of thermal coal down-swinging in the future, developers cannot rely on imported coal given the uncertainty surrounding it, so solar is a better option.”

Here’s the full article.


— Karl Cates
kcates@ieefa.org
Twitter @ieefa_institute

Categories: Coal in Australia, Coal vs Renewables in India, Institute for Energy Economics and Financial Analysis, Prairie State Energy Campus, Press, Wraps

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