The dramatic drop in the price of natural gas as a result of the U.S. fracking boom may doom the profitability of future coal-burning power plants. It is just one example of how imperfect information about the future makes energy markets uncertain and risky.
"The Prairie State Energy Campus, a vast new coal-fired power plant and mine that is now approaching completion in downstate Illinois is likely to be one of the last of its kind in this country, given that new Environmental Protection Agency regulations bar plants that put out as much carbon dioxide as conventional coal plants. The builders, a consortium of municipal utilities and co-ops across eight states from Missouri to West Virginia, rushed to get it up and running before greenhouse rules could stop it, convinced that coal would be cheaper for the next few decades than alternative sources, like gas or nuclear.
But at least for the near term, the owners will be paying extra for electricity, according to a report produced at the behest of anti-coal groups. When the construction cost rose from the $4 billion estimate to what the opponents put at $4.9 billion, the price of electricity from the project, which includes the capital cost, went above the cost of electricity bought on the open market in the Midwest, according to the report, produced by the Institute for Energy Economics and Financial Analysis, a nonprofit group in Belmont, Mass."