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October 10, 2008

Obama's electricity plans versus economic reality

By Bruce Thompson

Barack Obama wants the United States to replace its current electric power generation capability with Green Power (e.g. wind) in 10 years. The current crisis in the stock markets renders such a plan impossible. The Heard on the Street column in todays' Wall Street Journal points out

"The energy sector -- the third-biggest borrower after government and finance -- relies on debt to finance at least half the cost of building power plants. For that reason, credit turmoil dealt a blow to the sector by creating uncertainty about the cost and availability of capital. As stocks slide, it becomes less attractive and more difficult to issue equity as a source of capital.

"Unlike banks, many of which hold hard-to-value mortgage assets, energy companies own power plants that make an essential commodity, electricity. Assuming firms get through the crunch, slumping values now may lay the groundwork for a sharp recovery."

That's because current tough conditions, while making life difficult for those needing debt to finance existing projects, also choke off investment for new plants. At some point in the future, an economic rebound should push up demand -- forcing existing plants to run harder and prices to go up, allowing them to generate stronger profits."

Replacing our coal fired plants would require re-capitalizing 50% of our existing investment in power generation. The money is simply not there. We should concentrate our efforts and our capital on clean, reliable, cost effective generation such as clean coal, not waste it on chasing an anthropomorphic global warming fantasy.