Institute slaps Texas-sized target on seven coal-fired power plants

The Institute for Energy Economics and Financial Analysis on Sept. 12 published a research report describing how the coal-fired electricity industry in Texas is in decline and unlikely to recover in the face of rising competition from other energy sources.

The report by IEEFA Director of Resource Planning Analysis David Schlissel looks specifically at seven aging plants that will likely be retired for their failure to compete. “None of the 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. Indeed, all but one of the plants can be expected to produce pre-tax losses for their owners in coming years,” Schlissel said. He added that the seven plants are emblematic of a fading industry.

The 8,100 MW of capacity from these seven plants represents a little more than 40% of the total coal-fired capacity in the Electric Reliability Council of Texas (ERCOT) region. “The key finding is that fundamental economic transformations are undermining coal plants in Texas and that six of seven Texas coal-fired generators they studied in Texas are at risk of retirement,” said Tom “Smitty” Smith, director of the Texas office of Public Citizen.

The report notes several forces arrayed against coal-fired generation and that suggest retirement of coal-fired plants is likely;

  • The collapse of natural gas prices and subsequent declines in the cost of generating power and the increases in generation at natural gas-fired power plants.
  • Increased competition from thousands of megawatts (MW) of new wind and solar resources due to steep declines in installation prices, improved operating efficiencies and transmission upgrades.
  • Low energy market prices in ERCOT’s deregulated wholesale markets driven by lower natural gas prices and increased generation from renewable resources.
  • Sharp reductions in generation from coal-fired plants as their output has been displaced by increased output from renewable and natural gas-fired capacity.

IEEFA’s analyses includes the following case-by-case findings:

  • Continued operation of Luminant’s Monticello and Big Brown coal 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. Notable is that Luminant and its parent Energy Future Holdings are in bankruptcy, with a plan pending to turn the power plants over to certain creditors.
  • Luminant’s Martin Lake plant would produce minimal positive pre-tax earnings during the years 2017-2024 under base case assumptions, whether or not the plant retrofits its existing scrubbers. The plant would generate net losses for its owner if it produces less energy than was assumed in the base case or if energy market prices are lower.
  • Continued operation of the Fayette Power Project, owned by the Lower Colorado River Authority and Austin Energy, and the J.K. Spruce Unit 1 owned by CPS Energy, will be uneconomic for the owners and their customers in coming years.
  • Continued operation of the Gibbons Creek plant will be unprofitable for any owner after the plant’s existing power purchase agreements (PPAs) end in September 2018.

IEEFA considers it highly probable that these plants—and many like them—will be retired, a view that is consistent with those of other independent energy-market observers. ERCOT itself has concluded that 8,000 to 18,000 MW of coal-fired generating capacity is at risk for retirement between 2017 and 2031. Moody’s Investor Services has found that over 12,000 MW of coal-fired capacity in ERCOT is either losing money or has, at best, minor positive cash flows. UBS Financial has similarly concluded that it is “inevitable” that several of the largest coal generators in Texas will be retired because they are facing significant environmental compliance costs.

The coal-fired generator owners themselves have reported that market forces have led to significant losses, the report noted. For example, Energy Future Holdings took an impairment of $2.541 billion for five of its coal-fired generators in 2015 due to the “continued decline in forecasted wholesale electricity prices in ERCOT.” This loss followed the company’s $4.640 billion write-off of the value of three coal-fired generators in 2014.

IEEFA recommends that 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. Since much of this capacity is fired with locally-mined lignite, job losses would not just be at the power plants.

The seven coal plants covered are:

  • Big Brown, Luminant Generation, 1,208 MW operating capacity;
  • Martin Lake, Luminant Generation, 1,635 MW;
  • Monticello, Luminant Generation, 1,955 MW;
  • Coleto Creek, Dynegy, 635 MW;
  • Fayette, Lower Colorado River Authority and Austin Energy, 1,662 MW;
  • Gibbons Creek, Texas Municipal Power Agency, 470 MW; and
  • J.S. Spruce Unit 1, CPS Energy, 555 MW.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.