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Released October 25, 2016 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Seven Texas coal-fired power plants with a total output of 8,100 megawatts (MW) are not financially viable and may be forced to close sooner rather than later, according to a recent report from an energy analysis firm. These plants represent about 40% of the coal-fired generating capacity in the Electric Reliability Council of Texas (ERCOT) (Austin, Texas), the Lone Star State's grid operator.
The report, The Beginning of the End: Fundamental Changes in Energy Markets are Undermining the Financial Viability of Coal-Fired Power Plants in Texas, was produced by the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio). Its bleak outlook echoes similarly downbeat projections issued by ERCOT itself, Moody's Investors Service (NYSE:MCO) (New York, New York) and other firms.
The report noted that these seven coal-fired generators were not the only ones under financial pressure in Texas. But the seven it profiled range from moderately unprofitable to extremely unprofitable. The seven facilities are:
"IEEFA has found that none of the (seven) units is financially viable, as none can be expected to produce substantial pre-tax earnings for their owners or be economic for ratepayers in coming years," Schlissel wrote. "Indeed, all but one of the plants can be expected to produce pre-tax losses for their owners in coming years."
He further noted: "Continued operation of Luminant's Monticello and Big Brown plants will be extremely unprofitable for Luminant (or any owner), whether or not the plants are required to install new scrubbers, and the same is true for Dynegy's Coleto Creek plant." He said continued operation of the Fayette and the J.K. Spruce Unit 1 generators, "will be uneconomic for the owners and their customers in coming years."
The IEEFA report said the Martin Lake plant "would produce minimal positive pre-tax earnings during the years 2017-2024 under our base case assumptions, whether or not the plant retrofits its existing scrubbers."
Sharp declines in natural gas costs are one of the factors undermining the financial viability of these and other coal-fired generators in Texas. Gas prices declined by 70% between 2008 and 2015, and many investors and analysts (including Schissel) predict continued low prices for the next few years, one of the consequences of the shale revolution. Texas is one of the largest gas-producing states in the U.S.
Click on the image at right to see a chart detailing natural gas prices.
Low natural gas prices have meant significantly lower energy market prices already in ERCOT, as the price of natural gas is the primary driver of electricity prices there, Schlissel wrote. "Continued low prices will maintain natural gas' competitive advantage over coal for generating electricity, which in turn will continue to undermine the viability of the continued operation of existing coal-fired generators in ERCOT," he added.
The cost of renewable energy also has declined sharply in recent years, the IEEFA report noted. For example, it said wind-based power purchase agreement (PPA) prices in ERCOT and the Southwest Power Pool (SPP) declined from an average of $54 per megawatt-hour (MWh) in 2009 to $22.42 in 2014, and have remained inexpensive even since. That has led to a dramatic expansion of wind power in the Lone Star State. Today, nearly 18% of all electricity generated in Texas comes from wind-power installations.
Click on the image at right to see the dramatic growth of wind power in Texas since 2000.
Solar PPA prices in Texas also are low: Austin Energy recently finalized PPAs for solar in 2015 for about $40 per MWh, the report noted. It predicted continued additions of cost-competitive wind and solar generation in the coming years, further increasing the economic and financial stress on coal-fired generators.
The report recommended, "the policy discussion in Texas shift now to how best to phase out these plants, what to replace them with and how to retrain employees who stand to lose their jobs."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
The report, The Beginning of the End: Fundamental Changes in Energy Markets are Undermining the Financial Viability of Coal-Fired Power Plants in Texas, was produced by the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio). Its bleak outlook echoes similarly downbeat projections issued by ERCOT itself, Moody's Investors Service (NYSE:MCO) (New York, New York) and other firms.
The report noted that these seven coal-fired generators were not the only ones under financial pressure in Texas. But the seven it profiled range from moderately unprofitable to extremely unprofitable. The seven facilities are:
- Big Brown Power Station, a two-unit, 1,300-MW plant that came online in 1971. It is owned by a unit of Luminant (Dallas, Texas).
- Martin Lake Power Station, a three-unit, 2,379-MW plant that began operating in 1977. This plant also is owned by a unit of Luminant.
- Monticello Power Station, a three-unit, 1,980-MW plant also owned by Luminant. This plant started generating electricity in 1974.
- Coleto Creek Power Station, owned by a unit of Dynegy (Houston, Texas), which began operating in 1980. This is a one-unit, 632-MW plant.
- Fayette Power Station, a three-unit, 1,690-MW plant majority-owned by the Lower Colorado River Authority (Austin, Texas). This station came online in 1979.
- Gibbons Creek Power Station, a 444-MW, one-unit station owned by the Texas Municipal Power Agency (Anderson, Texas).
- Unit 1 of the J.K. Spruce Power Station, owned by CPS Energy (San Antonio, Texas). This unit has generating capacity of 546 MW.
- The collapse of natural gas prices and subsequent declines in the cost of generating power, and increases in the generation at natural gas-fired power plants.
- Increased competition from thousands of megawatts of new wind and, increasingly, solar photovoltaic resources due to steep declines in installation prices, improved operating efficiencies and transmission upgrades.
- Low energy market prices in the ERCOT's deregulated wholesale market, driven by lower natural gas prices and increased generation from renewable resources.
- New public health and environmental regulations that give owners of coal-fired plants pause on whether to make expensive investments in their aging coal plant(s).
"IEEFA has found that none of the (seven) units is financially viable, as none can be expected to produce substantial pre-tax earnings for their owners or be economic for ratepayers in coming years," Schlissel wrote. "Indeed, all but one of the plants can be expected to produce pre-tax losses for their owners in coming years."
He further noted: "Continued operation of Luminant's Monticello and Big Brown plants will be extremely unprofitable for Luminant (or any owner), whether or not the plants are required to install new scrubbers, and the same is true for Dynegy's Coleto Creek plant." He said continued operation of the Fayette and the J.K. Spruce Unit 1 generators, "will be uneconomic for the owners and their customers in coming years."
The IEEFA report said the Martin Lake plant "would produce minimal positive pre-tax earnings during the years 2017-2024 under our base case assumptions, whether or not the plant retrofits its existing scrubbers."
Sharp declines in natural gas costs are one of the factors undermining the financial viability of these and other coal-fired generators in Texas. Gas prices declined by 70% between 2008 and 2015, and many investors and analysts (including Schissel) predict continued low prices for the next few years, one of the consequences of the shale revolution. Texas is one of the largest gas-producing states in the U.S.
Click on the image at right to see a chart detailing natural gas prices.Low natural gas prices have meant significantly lower energy market prices already in ERCOT, as the price of natural gas is the primary driver of electricity prices there, Schlissel wrote. "Continued low prices will maintain natural gas' competitive advantage over coal for generating electricity, which in turn will continue to undermine the viability of the continued operation of existing coal-fired generators in ERCOT," he added.
The cost of renewable energy also has declined sharply in recent years, the IEEFA report noted. For example, it said wind-based power purchase agreement (PPA) prices in ERCOT and the Southwest Power Pool (SPP) declined from an average of $54 per megawatt-hour (MWh) in 2009 to $22.42 in 2014, and have remained inexpensive even since. That has led to a dramatic expansion of wind power in the Lone Star State. Today, nearly 18% of all electricity generated in Texas comes from wind-power installations.
Click on the image at right to see the dramatic growth of wind power in Texas since 2000.Solar PPA prices in Texas also are low: Austin Energy recently finalized PPAs for solar in 2015 for about $40 per MWh, the report noted. It predicted continued additions of cost-competitive wind and solar generation in the coming years, further increasing the economic and financial stress on coal-fired generators.
The report recommended, "the policy discussion in Texas shift now to how best to phase out these plants, what to replace them with and how to retrain employees who stand to lose their jobs."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
