TXU 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.”

The company announced 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.

Nonetheless, the company still plans to build two coal units at its Oak Grove site and one coal unit at its Sandow site in order to meet ERCOT requirements for immediate additional capacity.

The move to abandon what had previously been announced as a keystone in the company’s future development is expected to send seismic waves through finance markets for traditional coal-fired generation, according to some observers.

Innovest Strategic Value Advisors, a financial research firm, and the National Environmental Trust (NET) issued a statement highlighting the impact the TXU decision is having with regard to environmental risks associated with large scale coal-development.

The “warning light is now flashing at Dynegy, LS Power, Peabody Energy, Excel, Dominion, and other firms with plans to build multiple coal-fired power plants,” the statement reads.

Innovest analyst Eric Kane highlighted “investor risks due to the rising construction costs and schedule delays” of TXU’s earlier coal-fired expansion strategy. He concluded: “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 2,300 MW of nuclear and 5,800 MW of coal-fired generation.

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