TXU abandons new coal in favour of cleaner generation

7 March 2007

Plans to develop up to eight coal-fired stations in Texas have been abandoned by TXU as its new ownership shifts the company’s focus onto cleaner generation technologies.

TXU, which also owns 2,300 MW of nuclear capacity, announced it has officially suspended efforts to obtain permits for the coal-fired units for a period of up to six months and plans to formally withdraw the eight pending air permit applications. Mike McCall, chief executive officer, TXU Wholesale said: “TXU does not intend to apply or reapply for permits to build additional coal units utilising current pulverised coal-fuel technology.” No mention was made of proposed new nuclear developments that the company had previously announced along with the eight coal-fired stations.

The company revealed the new direction following its recent merger with Kohlberg Kravis Roberts & Co (KKR) and Texas Pacific Group (TPG), two US private equity firms, and the investment bank Goldman Sachs. Under the terms of the merger an investor group led by KKR and TPG will acquire TXU in a transaction valued at $45 billion. The new generation arm of the company will be known as Luminant Energy and is expected to strengthen environmental policies and make significant investments in alternative energy. Among the stated plans are a reduction from eleven to three planned coal-fired units - a 75% reduction in new coal capacity - a $400 million investment in demand side management initiatives, and an “increased commitment” to exploring renewable energy sources and investing in alternative energy. TXU is also pledging to support a mandatory cap and trade programme for carbon, will reduce emissions of mercury, sulphur dioxide and nitrogen oxides by 20% from 2005 levels, and cut its own carbon emissions by increasing efficiency of its generating facilities by up to 2%. In addition, the group intends to join the FutureGen Alliance, which hopes to create the world’s first near-zero-emissions fossil-fuel power plant, and more than double its purchase of wind power to some 1,500 MW.

Innovest analyst Eric Kane noted: “Although the TXU case was unique in its proposed scale, the challenges faced are indicative of a growing trend throughout the utility industry. Industry peers will face similar challenges as they move forward with expansion strategies that rely on new power plants that utilise outdated, highly polluting pulverised coal technology.”

TXU supplies electricity to more than 2.1 million customers in Texas and has over 18,100 MW of capacity, including 5,800 MW of coal-fired generation.

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