Sorry, but low electricity prices, especially when they are aided by record amounts of wind power generation, are good news.
Texas’ national lead in cheap wind power, combined with near historically low natural gas prices, mild weather, an abundant power supply and slower growth in electricity demand, can work to the detriment of power companies.
The combination weighed down wholesale power prices last year to their lowest averages since 2002. And the effects are only becoming more dramatic in 2016, even creating bizarre instances when, in the abstract at least, providers are paying to put electricity on the market.
“It’s pretty dire,” said Michael Ferguson, associate director at Standard & Poor’s covering utilities and infrastructure. “It’s a bad situation for gas generators, but for coal generation, it’s even worse.”
Texas’ wholesale power prices averaged $26.77 per megawatt-hour last year, down nearly 35 percent from $40.64 per megawatt-hour in 2014. The cost was more than $70 as recently as 2008.
While now is a good time for consumers to lock in cheaper electricity prices, well more than 25 percent of the state’s power plants are operating at a cash loss, especially the older coal-fired plants, power executives and analysts estimated. That’s before more stringent federal emissions regulations go into effect in coming years
Until coal plants start shutting down or the state tweaks regulations to artificially inflate prices, power companies will struggle, executives said. A new Moody’s Investors Service report concluded that Texas “power prices are unlikely to climb out of their doldrums.”
Already, less than a quarter of Texas’ coal fleet is operating early this spring, as more generators simply take their coal plants offline until the summer heat brings more demand, analysts from Tudor, Pickering, Holt & Co. noted.
In March, wind added to the grid more than coal power for the first time ever for a full month. Wind contributed 21.4 percent of the grid’s overall power, compared with 12.9 percent from coal, which used to be the dominant source of the state’s electricity generation, according to the Electric Reliability Council of Texas, which manages about 90 percent of the state’s electricity load.
“Ultimately, something is going to have to give here,” said Thad Hill, president and CEO of Calpine Corp., the largest power generator in the Houston region and owner of the nation’s largest fleet of natural gas-fired power plants.
Texas is home to nearly 20 coal-fired power plants and the near future of at least six of them are considered at risk.
They will require expensive upgrades to meet federal standards, according to a recent ERCOT analysis, and the costs could outweigh the benefits of keeping them open. That’s not even counting the effects of the federal Clean Power Plan, which is pending in court.
“Ultimately, we think the market could be a lot tighter than people think, particularly if people start mothballing or retiring units,” said Hill, whose Calpine would stand to benefit because it doesn’t own any coal plants.
At-risk plants include Luminant’s Big Brown, Monticello and Martin Lake coal plants in East Texas, half of Luminant’s Sandow plant east of Austin, NRG Energy’s Limestone plant east of Waco, and Engie’s Coleto Creek plant near Victoria that’s being bought by Dynegy.
It’s fine by me if those coal plants go the way of the dodo. It’s long overdue, and their demise will make meeting the Clean Power Plan benchmarks even easier. More investment in solar energy will help mitigate the low-wind periods and ensure demand can be met in the summertime. What’s not to like?