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.
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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.