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The 1,500 megawatt coal-fired Desert Rock power plant – proposed for tribal land in the Four Corners region near Farmington, N.M. -- once seemed like a slam dunk. A joint venture of the Navajo Nation and energy company Sithe Global, the plant promised the tribe much-needed jobs, along with millions in revenue and coal royalties. In 2003, when it was launched, coal's star was rising: The Bush White House refused to acknowledge the existence of climate change, and regulatory agencies were generally more permissive.

Seven years later, though, Desert Rock looks all but dead. The economy is flailing, and investors worry how future climate change legislation will affect energy development. Meanwhile, electricity demand in the Southwest is declining, and with public utilities scrambling to keep up with statewide mandates to generate more power from renewable energy sources, nobody is currently seeking new sources of coal power.

So Sithe Global, which the tribe had expected to fund the $4 billion project, is going back to the drawing board, says Sithe Executive Vice President Dirk Straussfeld. Suddenly, everything is up for review – including the plant's design as a coal facility.

From the beginning, Desert Rock's developers cited California's growing demand for electricity.  But in 2007, the state's Public Utilities Commission essentially banned utilities from signing contracts for electricity from coal-fired power plants. Instead, it required them to generate or purchase power with emissions comparable to or lower than modern natural gas facilities. And not one of the six Southwestern public utilities listed in Desert Rock's 2007 environmental impact statement is planning to add new coal power to its mix.

Uncertainty is the biggest challenge facing investment in coal right now, according to energy economist Jonathan Lester. No one knows whether Congress will eventually pass a cap-and-trade program or a carbon tax or perhaps something else entirely, any of which could impact coal plants in particular, since they're among the nation's largest source of greenhouse gas emissions. In some cases, investors may balk entirely, says Lester. In others, they're likely to demand higher returns to insulate plants against potential climate costs. "Right now, they are faced with the worst of all possible worlds: They just don't know. And that kills investment."

Before backpedaling on Desert Rock in late March, Sithe Global — 80 percent of which was purchased in 2005 by the investment firm The Blackstone Group — withdrew from two other coal-fired power plants it had planned in the United States.

In February, it abandoned a proposed 300 megawatt waste-coal plant in Pennsylvania. The following month, it altered plans for the Toquop Energy Project near Mesquite, Nev., which was originally envisioned as a natural gas plant but was switched to a coal-fired power plant in 2007. Now the pendulum has swung back again: The Blackstone Group plans to invest $1.4 billion in a 700 megawatt natural gas plant with a 100 megawatt solar component at the Toquop site.

Investors weren't the only problem; Desert Rock also recently came up against significant permitting setbacks. In September 2009, the Environmental Protection Agency revoked the plant's major air-quality permit, originally granted under the Bush administration. In addition to the issue of greenhouse gas emissions, a number of other details required review, says Colleen McKaughan, associate director for the EPA's Region 9 Air Division. These included concerns related to fine particulate emissions, which can aggravate asthma and are major cause of haze.

The EPA's decision vindicated environmentalists and tribal activist groups -- including Dine Citizens Against Ruining Our Environment (Dine CARE) and Dooda (which means "No!") Desert Rock – who argued that the plant would have exacerbated the air-quality problems caused by the two massive coal plants already in the Four Corners region. Without the permit, declared Dooda Desert Rock's Elouise Brown, the plant was dead.

The Navajo Nation insists Desert Rock is still on track, however. Straussfeld says the company is now actively reviewing the project in order to take into account all the changes in the economy, in regulatory permitting and in electricity demand. It can only go forward if it has customers, he says, and much has changed: "Load growth pretty much went away. And investment in coal projects is being viewed very critically by the public utilities commissions."

For now, Sithe has no plans to resubmit its application to the EPA for the coal plant's air permit. Before it can make a decision, Straussfeld says, the company will have to figure out what Desert Rock's future might hold.

Laura Paskus is a freelance writer and former High Country News editor based in Albuquerque, New Mexico.

For an in-depth look at the rise and fall of Desert Rock, watch for Paskus's upcoming investigative story for HCN.

Link to original story:  http://www.hcn.org/hcn/articles/the-death-of-desert-rock