The Market Speaks: Texas Coal-Fired Power Officially Unprofitable in January

Categories: Biz

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Coal-fired power plants generated some 30 percent less electricity in January than they did during the same month in 2011 -- a huge drop for a a workhorse fleet that has historically fed this state's sprawling transmission system with a steady supply of baseload power since pretty much forever.

Problem is, as the ERCOT market monitor's report illustrates, sometimes it just doesn't pay to make it.

Because natural gas continues to set the marginal price of electricity in Texas's deregulated market, cheap gas shaves profit margins for coal-fired power plants. Unlike, say, the Lower Colorado River Authority, which sets rates and guarantees generators a certain return, private companies serving most of the 75 percent of Texas within the ERCOT grid are at the mercy of the market.

So, when the price of natural gas flirts with $2.50 per million British Thermal Units, the wholesale price of electricity occasionally isn't worth the cost of generating it. Dallas-based Luminant, for example, was forced to back down some of its coal-fired units last year in response to low wholesale power prices, it announced in its grim10-k filing last week.

Energy analysts predict a number of older coal-fired plants will be idled or shut down, primarily for economic reasons. The question is: Will natural gas-fired plants proliferate in their place? Tough to say, we're told. Unlike coal power, they're easy to start up and back down. They're used primarily to supplement the grid during periods of high demand, like mornings and evenings when rates (and profits) are highest. But those profits may not be enough to justify the price tag for financiers.

And natural gas is an inherently unpredictable horse to bet on long term. Prices for this volatile commodity could jump just as suddenly as they tanked in 2008 during the shale boom. As we've written about here before, liquefying natural gas and shipping it out of the country could drive prices back up, making coal-fired plants the money machines they once were -- and beneficiaries out of shale gas producers and the electricity sector. Hell, maybe even Big Coal and its big Wyoming open-pit mines will get a bump.

If they don't, the industry's battered bottom line won't be the only casualty. Our electricity system is struggling to keep pace with the load we place on it. Grid operator ERCOT forecasts rolling blackouts as early as next summer. The quick fix, the private electricity industry says, is removing the $3,000 per megawatt-hour market cap which puts a ceiling on how far prices can climb during scarcity. Currently, it's the highest cap in the country. They claim the key to electric reliability is found in sending the right "price signals." In wonkspeak, it means our electric bill aren't big enough to spur private investment in new power plants.

It would be fantastic if we could conserve our way out of this mess, but with the population of the DFW area growing roughly the size of Tempe, Arizona, each year, that could be a tall order.

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12 comments
Coal Portal
Coal Portal

It is a bit of  juggling game in the coal industry and coal prices from underground mines to ensure enough electricity and steel capacity worldwide while making sure the impact on the environment and people is minimal. www.coalportal.com

Coal Portal
Coal Portal

Coal Terminals and additional infrastructure are required in the coal supply chain.  Coal newsletters and coal prices show developing economies are more likely to increase their investment into & their use of thermal coal & metallurgical coal in coming years because of its affordability and to meet increasing demands for electricity and steel.  www.coalportal.com

Coal Portal
Coal Portal

It is a bit of  juggling game in the coal industry and coal prices from underground mines to ensure enough electricity and steel capacity worldwide while making sure the impact on the environment and people is minimal. www.coalportal.com

Paul
Paul

The average price paid in Texas for natural gas used for electric power generation in December 2011 was ...

$3.55/MMBTU

see my comments in the Warren Buffet story for the links to the EIA website ...

scottindallas
scottindallas

You got this story a bit wrong.  We are having a mild Winter.  Demand is WAY down.  These coal plants aren't as efficient as the newer gas plants.  The coal plants are more expensive, demand is low, abnormally low for this time of year.  So, they shut down surplus generation, and they shut the more expensive plants first.  Occam's Razor my good man.  Now, there's another reason, with less production, our electricity sells for a bit more money.  So, they're saving money, and making money.  Our demand and electricity use must double in July and August from what it is today.  Of course we'll have demand met as long as we can. 

We have subsidized electricity generation $7.8 billion over the last few years.  That would be to help T. Boone Pickens with his wind investments, that he's no longer interested in.  If that money had gone to new gas plants, and to forever shutter the dirtiest coal plants, we'd have cleaner air, more capacity, lower costs of generation and no brownouts.  (and a market that is more rooted into the pricing element on which it's based.)

Mister_Mean
Mister_Mean

This whole mess seems to point to that those in charge of our “Free Market Energy/Deregulation” power do not know what the hell they are doing.    They seem to be more concerned with their take home pay and not the future planning of plants and energy demands of the customers that they serve.   Free Market Deregulation is a failure unless you are a politician or an executive with the power company.  Time for re regulation.

Bobthekb
Bobthekb

Two things that the government should be good at and in charge of are power and roads. Instead we let them become privatized to add in profit/cost........ what a great idea. 

Sparky Jolt
Sparky Jolt

Doesn't this fall right into the hands of the people who want to shut down or curtail coal usage in Texas anyway because of pollution? And, geez, maybe the electric companies can make up the shortfall with another 100-degree summer....Which cup is that little ball under now?

Paul
Paul

For the math challenged amongst us, $3,000 per MWHr would equate to an average monthly residential bill of $3,600.

I do not see how the generators can claim to be unprofitable.  A typical coal fired plant produces electricity at about $30/MWHr and current retail rates are in the range of $100 to $130/MWHr

According to EIA, the average cost of subbituminous coal delivered to the generating plant is $45/ton.  With an average heating value of 9,900 Btu/lb, the energy cost of coal is $2.27/MMBtu or less than that of what is quoted for natural gas.

Granted it is more expensive to handle coal (and its attendant ash) than natural gas, but it seems that the costs are on par right now.

If natural gas is so much cheaper to run, then why are not more of the natural gas plants up and running?

If natural gas supposedly sets the cost of electricity, then why are we not seeing lower retail prices?

Waiting quietly for the former TXU to implode ...

Oak Cliff Townie
Oak Cliff Townie

The first thing to understand is Free Market Deregulation wasn't really as much a deregulation as in leaving a vacant space where the rules were. "FREE MARKET" As it was new kind of regulation. And ERCOT was born out of it .Which left us with a more controlled/ Regulated electric system than we had in the past .

DD
DD

the $3000/mwh price only occurs during peak intervals. usually 1-2 hours max during highest demand periods each weekday when its 100+ degrees.  averaged out for the month, $100-$200/mwh (or 10-20 cents per kwh) is cost to consumers on variable rate plans. Providers cover the cost spike on the real-time market. Right now, you can lock-in a 9 cent per kwh rate with a good provider. you should be fine.

Paul
Paul

Peak demand occurs simultaneously at the peak pricing, hence the portion of the consumption is not linearly proportional to total usage.

However, if we assume that 10% of the consumption occurred at peak pricing ...

Total consumption: 1200 KWHr

Peak consumption: 120KWhr at $3/KWHr = $360Off peak consumption: 1,080KWHr at $0.12/KWHr = $129.60

Total Billed: $389.60

Edit: Or an average cost of $0.325/KWHr

Edit #2: So now we have the potential to be paying 2.5X to 3X the national average which means that 1.2X the national average wasn't enough.

How many of those providers have their own generating capacity?

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