Rising steel and copper costs are helping to drive a rebound in the costs of building new power plants, says a new report.
Power plant construction costs have been in a steady fall for several years but data from IHS Cera shows that costs have moved past a bottoming out period and started to rise in both North America and Europe.
The consulting and market analysis firm has taken the findings from its latest Power Capital Costs Index (PCCI), which measures project cost inflation in a similar way to the Consumer Price Index (CPI).
Power plant capital costs have not been affected by major global events such as unrest in the Middle East and the Japanese nuclear disaster, according to IHS Cera, whose PCCI tracks construction costs for building coal, gas, solar, wind and nuclear power plants in Europe and North America and are indexed to the year 2000.
“The latest rise in costs, while measured, represents a substantial shift in momentum,” said IHS Senior Director of Cost and Technology, Candida Scott. “We have now moved past a bottoming-out and costs have begun their slow march upward.”
The latest PCCI for North America rose two per cent to an index score of 219, indicating that a portfolio of power plants that cost $100 billion in 2000 would, on average, cost $219 billion today. The PCCI index for the European portfolio, calculated in euros, actually fell two per cent over the same six-month period. However, the decline was due largely to exchange rate fluctuations, especially the strengthening of the euro against the US dollar, says IHS Cera.
The European index score now stands at 190.
“Exchange rates aside, the underlying global trends for both North America and Europe are actually very similar and point to a period of rising costs,” said Scott.
Volatility in the commodities markets – and their impact on steel, electrical bulks and construction and civils – will be one of the main characteristic of the cost recovery moving forward, said Roger Kranenburg, director, IHS CERA Capital Costs Analysis Forum – North American Power.
“Steel costs are a prime example of the volatility that persists in the commodities markets,” Kranenburg said. “Supply uncertainties and disruptions combined with demand uncertainties linked to the strength of the economic recovery are going to persist.”
IHS CERA expects power capital cost in aggregate to continue their rise in the near term, though a downward correction in metal commodity costs will counteract increases in other markets to some degree.
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