Monticello Goes Under, More Coal and Nuclear Imperiled in Texas (Updated)
A week after the Department of Energy (DOE) proposed a rule to bolster uneconomic coal and nuclear generators in competitive power markets, Luminant announced that an “unprecedented low power price environment” will force it to retire a 1.9-GW coal-fired power plant operating in the Texas market. The plant’s economic woes suggest a larger swath of Texas baseload generators may face a similar fate.
Luminant will take its Monticello Power Plant in Titus County, Texas, offline in January 2018 because low prices within the Texas competitive wholesale bulk-power market managed by the Electric Reliability Council of Texas (ERCOT) have “profoundly impacted its operating revenues and no longer [support] continued investment,” said Curt Morgan, president and CEO of Vistra Energy, Luminant’s parent company, on October 6.
Along with Monticello, Vistra on October 13 also announced plans to shutter two other massive coal-fired plants in Texas—the 1.1-GW Sandow Power Plant (which includes a 2009-built unit) and the 1.2-GW Big Brown plant—in early 2018.
Luminant said that it filed a notice with ERCOT to retire Monticello, a process that will trigger a reliability review. “If ERCOT determines the units are not needed for reliability following this 60-day review, Luminant expects to stop plant operations on Jan. 4, 2018,” it said.
The coal plant’s closure will affect about 200 company employees. Financially, Vistra expects to take a hit of between $20 million to $25 million, a figure that includes employee-related severance costs and non-cash charges for materials inventory and the acceleration efforts to reclaim the plant’s mines, which were shuttered in the spring of 2016.
Spotlight on Pricing Woes in ERCOT
The Monticello Steam Electric Station, which was a POWER magazine Top Plant nearly a decade ago, comprises three supercritical units. Monticello Units 1 and 2 are each rated at 565 MW and are powered by a Combustion Engineering boiler and a Westinghouse turbine-generator. They came online in 1974 and 1976, respectively. Unit 3, rated at 750 MW and powered by a Babcock & Wilcox boiler and a turbine-generator from General Electric, went online in 1978.
The 1.9-GW plant made up a fraction of the 101 TWh ERCOT’s coal plants generated in 2016. Coal generation made up 28.8% of ERCOT’s total generation mix, which has been shrinking as more natural gas plants and wind farms are added to the grid. In 2016, gas’ share was 43.7%, nuclear generated 12%, and wind generated 15.1% (soaring from just 3% in 2007).
But Monticello’s economic worries aren’t unique in the Texas wholesale market, which got its start around 1995. According to the 2016 State of the Market Report issued in May by Potomac Economics, ERCOT’s independent market monitor, economic pressure is clearly mounting on ERCOT’s existing coal and nuclear units because their non-shortage prices—the vast majority of net revenues they earn—have been “substantially affected by prevailing natural gas prices.”
Other industry observers point out, however, that the overarching issue is how drastically wholesale power prices have fallen in ERCOT—the entity that manages 90% of Texas’ electric load, three-quarters of which is in the competitive market. In 2014, for example, while prices varied by zone across the market owing to congestion costs, the average annual real-time energy market price hovered at $40.64/MWh. In 2016, that average fell to $24.62/MWh—an all-time record low in ERCOT (Figure 1). In the first eight months of 2017, meanwhile, prices averaged $28.64/MWh.
2. The price drift. In its “2016 State of the Market Report” published earlier this year, Potomac Economics, ERCOT’s independent market monitor, said the average annual real-time energy market price decline is largely pegged to “lower natural gas prices and surplus supply.” Courtesy: Potomac Economics
As some experts note, falling wholesale power prices are indicative that competition is functioning as it should. ERCOT’s unique energy-only market is designed so that net revenues from the real-time energy and ancillary services markets alone provide the economic signals that inform generator decisions to invest in new generation or retire existing generation. The market was also designed so that generators should shoulder the risk of building new power plants, and that new power plants produce more electricity per unit of fuel, noted the Association of Electric Companies in Texas.
ERCOT has said that wholesale energy prices have fallen so quickly partly because of the efficiency of its competitive market wholesale market, but they also resulted primarily from “very low natural gas prices,” averaging $2.45/MMBtu, as well as an influx of wind power production. Since 2009, ERCOT’s wind capacity has nearly doubled to more than 17,000 MW and an additional 5 GW may connect to the grid this year based on existing transmission agreements.
