Commentary

Another Coal–fired Power Plant Bites the Dust

We have previously written about “doom and gloom” predictions we hear from industry and its friendly politicians every time a new or revised environmental standard or regulation is proposed or adopted that would help clean up our environment and better protect the public health. With the current political climate in the U. S., and especially here in Texas, hardly a day goes by without encountering claims that environmental regulations are “job-killers,” driving businesses overseas and/or inhibiting development of new businesses and industries and creation of new jobs. This “drum beat” routinely includes claims that these regulations cause our state to lose competiveness in the global marketplace; are enacted with no reasonable benefit derived from their costs; and are foisting higher costs on consumers. Yet, these “sky-is-falling” claims have been demonstrated baseless time and time again when major environmental protection efforts have been implemented.

As we previously wrote, we are now seeing and hearing what we have known all along --- that the real reason behind industry’s aggressive resistance is not “burdensome regulations,” it is profit! Environmental advocates can’t help but point out that this long-awaited admission from the power industry demonstrates that it is not clean air safeguards that are causing any financial hardships --- it’s the fact that old, dirty coal plants simply cannot compete with new cleaner sources of power like natural gas, wind and other renewable energy sources.

In August 2012, the Dallas-based power company Energy Future Holdings, more commonly known as Luminant, announced it was shutting down two coal-fired power generators in East Texas in December because power prices are too low, and will re-start the units in June 2013 when the peak summer demand begins; i.e. when they can make more money. Despite having repeatedly said that it would have to shut down these coal plants if proposed new, more stringent environmental regulations are implemented, Luminant finally admitted that its decision to shutter these plants “has nothing to do with meeting environmental rules” and that “you need only look as far as wholesale power prices to see the reason why.” Luminant’s decision comes at a time when low natural gas prices have caused Texas wholesale power prices to drop, leaving plant operators with thin profit margins. Texas uses natural gas-fired plants to meet the rise and fall of consumer demand each day, so natural gas prices tend to set electricity prices.

This trend is continuing nation-wide as the glut of natural gas and the resulting low prices cause some power producers across the country to consider moving away from coal-fired electric plants, with all their baggage about air pollution and water consumption, and switch to natural gas. Importantly, this trend is continuing right here in Texas.

Marking another in a series of abandoned coal projects, in early December Houston-based NRG Texas Power LLC announced that it has dropped the planned $1 billion, 800-megawatt expansion of its coal-fired power plant in Limestone County, 120 miles upwind of the Dallas-Fort Worth area, and has asked the Texas Commission on Environmental Quality (TCEQ) to void the construction permits it already had received for the project.

NRG said the decision was not based on environmental activism or regulation, but was based on economics, since natural gas, now at or near record low prices, is “the only fuel source that’s economical right now,” and that “a new coal plant did not make economic sense.” While NRG asserts that many existing coal-fired power plants continue to be profitable, the capital costs associated with building new plants make them cost-prohibitive. NRG is seeking permits for two gas-fired plants, but financing for those is also uncertain because Texas power prices are low.

While some environmentalists might proclaim that NRG’s decision is a sign that the pressure on coal-fired power production is working, it is clear that while environmentalist opposition and tougher federal regulations may have been a small factor in scuttling the project, market forces were the main cause.

Nevertheless, this market-driven trend presents some significant environmental opportunities. The demise of these proposed coal plants in Texas has encouraged investment in cleaner energy. Texas leads the nation in wind energy production and many environmentalists assert that the incredible growth in wind energy never would have been possible without the success in stopping or delaying new coal projects --- the market space created for clean energy being a direct result of the “coal” fight that has taken place over the last seven years.

All said, maybe the current economics of energy production will not only drive the power industry --- even in Texas --- to admit that environmental protection and economic strength are not opposing forces, but will foster further advancements in working together to provide a cleaner, healthier place to live and work, and maintain strong economic prosperity and growth.