Rock-bottom natural gas prices have forced the wonks over at the Brattle Group to revise their national prediction for the number of coal-fired power plants likely to retire in the coming years steeply upward. And when we say steeply, we mean by some 25 gigawatts, or roughly enough electricity to power 25 million homes for an hour.
Natural gas prices, at an all-time low these days due to the shale-boom glut, have depressed electricity prices, eroding the profit margins of coal-fired power plants that often thrive or die based on the gap between natural gas prices and coal prices.
Yet contrary to what you hear from politicos like Rockwall's Rep. Ralph Hall and Texas Attorney General Greg Abbott, the "war on coal" that is shutting down power plants isn't regulatory; it's market-driven.
Texas is bucking the trend. Unlike almost any other region in the country, the number of coal-fired plant retirements in ERCOT has been revised downward in the most recent Brattle report.
Weird, huh? And at odds with the doom-and-gloom scenarios so often predicted.
One of the report's authors, Metin Celebi, said the most important factor in the analysis is that the price of natural gas is predicted to rise in the coming years, widening profit margins for coal-fired plants. Texas has a ready supply of cheap lignite coal, and, since electricity prices are largely pegged to natural gas, power plants that use this low-cost coal make more money.
A second factor is the ongoing installation of pollution control equipment at many of these Texas plants, which indicates they're prepared to meet approaching air quality regulations.
Third, generators are betting on market reforms from the Public Utility Commission of Texas. They've already raised the price ceiling of electricity by 50 percent. It's predicted they'll double that soon.
If you like this story, consider signing up for our email newsletters.
SHOW ME HOW
You have successfully signed up for your selected newsletter(s) - please keep an eye on your mailbox, we're movin' in!
All in all, about 2 percent of coal-fired capacity in Texas is expected to retire. If this is somebody's idea of a war, it's pretty bloodless. Brattle's analysis even accounts for the kinds of pollution controls mandated by the Cross-State Air Pollution Rule, which was struck down by a federal appeals court.
"This 2012 reassessment indicates that somewhat more retirements are likely (about 25 GW) than we foresaw in late 2010. However, that change is primarily due to changing market conditions, not environmental rule revisions, which have trended towards more lenient requirements and schedules," the report concludes.
The week before its release, Greg Abbott wrote in the DMN that, "one of our recent victories against the Obama administration did more than just stop the EPA from violating the law. It also saved more than 500 jobs and protected Texans' access to reliable electricity -- which was jeopardized by the EPA's draconian regulations."
He's clearly referring to Luminant's showdown with the EPA in 2011, when the power generator threatened to shutter two units at its Monticello power plant. He doesn't bother to mention that Luminant has decided to idle them for six months anyway, largely because the economics, not the regulations, simply don't add up.