Another One Bites The Dust: Luminant to Close Coal-Fired Power Plant in Texas

Researched by Industrial Info Resources (Sugar Land, Texas)--Another coal-fired coal-fired power plant appears to have fallen victim to hard economic times. Luminant, a subsidiary of Vistra Energy (NYSE: VST) (Dallas, Texas), said last week it plans to retire the 1,800-megawatt (MW) Monticello Power Plant in Texas early next year.

Vistra Chief Executive Officer Curt Morgan said in a Friday press release that "the market's unprecedented low power price environment has profoundly impacted [Monticello's] operating revenues and no longer supports continued investment."

Luminant estimated that about 200 employees will be impacted by Monticello's retirement in January. Located in Titus County, the plant began generating electricity in 1975.

Luminant said it filed a notice with the Electric Reliability Council of Texas (ERCOT), which will conduct a reliability review. If ERCOT determines the units are not needed for reliability following the 60-day review, Luminant expects to stop plant operations on January 4. The company said it expects to record one-time charges of approximately $20 million to $25 million in third-quarter 2017 related to the retirement.

Power market observers have long noted the poor economics of Monticello and other coal-fired power plants in Texas, due to competing low natural gas costs and increased competition from renewable energy sources. A report that was released last year by the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio) named the plant as one of seven in the state that were not financially viable. For related information, see October 25, 2016, article - Report: Seven Texas Coal-Fired Generators Lack Financial Viability.

Luminant said it also would continue ongoing reclamation work at the plant's coal mines, which ceased active operations in the spring of 2016. For related information, see November 15, 2016, article - Texas Coal Mines Fading with the Market.

Coal-fired power plants aren't having a hard time just in Texas.

According to a recent Department of Energy (DOE) report, between 2002 and 2016, 531 coal generating units representing about 59,000 MW of generation capacity retired from the U.S. generation fleet. The Energy Information Administration (EIA) reported that coal-fired power plants made up more than 80% of the 18,000 MW of capacity that was retired in 2015. The DOE report said about 12,700 MW of coal-fired generation was expected to retire through 2020.

U.S. Secretary of Energy Rick Perry ordered the DOE report in order to examine the impact of the current economics on electricity markets and reliability. Among other things, the report said market distortions threaten the resilience of the grid and the future of the nation's energy security. The report said the so-called "Polar Vortex" of 2014 exposed problems with the resiliency of the electric grid. A band of cold weather across the eastern and central United States that year stressed the grid, with PJM Interconnection struggling to meet demand for electricity because a significant amount of generation was not available to run. According to the DOE report, the loss of generation capacity "could have been catastrophic, but a number of fuel-secure plants that were scheduled for retirement were called upon to meet the need for electricity."

Several coal-fired power units that were slated for retirement were deployed to meet demand during the adverse weather, according to the DOE.

Last month, Perry proposed that the Federal Energy Regulatory Commission (FERC) take "swift action to address threats to U.S. grid resiliency."

Perry urged FERC to issue a rule requiring its organized markets to develop and implement reforms that would fully price generation resources necessary to maintain the reliability and resiliency of the nation's grid.

"A reliable and resilient electrical grid is critical not only to our national and economic security, but also to the everyday lives of American families," Perry said in a press statement. "A diverse mix of power generation resources, including those with on-site reserves, is essential to the reliable delivery of electricity--particularly in times of supply stress such as recent natural disasters." Power plants with at least a 90-day, on-site fuel supply would benefit from the proposed cost-recovery regulatory change.

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