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Energy Business Case - Coal Mine in West Virginia

Situation

Coal in Africa: An opportunity is available to invest in a coal mine in West Virginia. The mine’s value is less than in past years because of actual and anticipated restrictions on coal-fired power generation in the United States. However, the mine has a chance to sell its coal on contract to a public utility in West Africa. The utility is working through the World Bank for financing to build a number of coal-fired power plants. If they obtain World Bank financing, then a customer for the coal mine is assured, at least for the duration of the contracts. The power plants will employ the best current technology for burning coal, which exceeds all current air quality standards for the region. However, the power plants will not be designed to attempt carbon capture. The area of Africa the plants will serve suffers from extreme energy poverty, with some of the lowest per capita energy consumption in the world.

Overview of the Region

West Africa is the westernmost region of the African continent. It has been defined in Africa as including the sixteen countries of Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.


Figure 1 West Africa region

According to International Renewable Energy Agency report in 2013 there is a high projected demand growth for the region:


SWOT Analysis

Strengths

Lower mine’s value at acquisition
Already set infrastructure and logistics
Weaknesses

Commodity product
No presence in the region
Opportunities

Job creation
Growing projected demand for electricity in the region
Renewable energy has still got higher production cost therefore coal-burning electricity will be the better alternative for the region
Threats

Finance should be approved by World Bank
Political instability of the region
Increasing pressure from environmentalists and political markets
Renewable energy sources promotion in the region

As per EIA Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014 report, coal is cheaper than renewable energy especially for the West African region: 


Figure 4 Estimated Levelized Cost of Electricity (LCOE) for New Generation Resources, 2019

Conclusion It is an interesting opportunity, however a couple of items should be considered:

1. Financing is dependent on the World Bank approval. In today’s atmosphere surrounding issues of climate change, environmental pollution, increasing carbon taxes etc. it may block the entire initiative if the financing is not approved because World Bank will be put under pressure.

2. Political instability of the region. The region is prone to wars and government overturns very often. This is a huge risk to the entire undertake, because the current contracts may become invalid or the damage may be brought to plants.

Economically it looks very attractive, because at the moment there is not much power generating facilities in the region, but demand projections looks very good therefore huge potential.

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Figure 1. Proved coal reserves.

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  Figure 2. Prices in US Dollars per tonne.

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Figure 3. Coal consumption by region.

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Figure 4. Natural gas prices.

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