As more coal plants are retiring, is it a smart time to make the switch to renewable energy?
In January 2019, ERCOT was notified of yet another coal plant closure. While it may seem like “business as usual” as the nation is in an uproar about all things “green,” each new coal plant closure pushes the energy market further toward unpredictability and chaos. We’re all left wondering: are alternative energy sources a viable option yet?
Or do they still have a ways to go before they’ll be able to support the infrastructure that has been built on a heavy reliance on coal?
The Beginning of the End for Coal
2017 marked the beginning of the long, arduous end for the coal industry. On average, one coal plant was closed every 15 days throughout 2017. A total of 27 plants were slotted for either closure or conversion.
In 2018, there were twenty coal plant closures. Texas took a large brunt of the change with Vistra closing four plants around the state.
Now, just a few short months into 2019, we’re seeing the trend continue and even increase. From 2019 to 2024, the United States is expected to retire coal plants contributing a total of 23.1 gigawatts of energy, according to the Institute for Energy Economics and Financial Analysis.
Yet the U.S. is still left with 245.6 gigawatts of coal plant operating capacity that have yet to be included in planned retirements or conversions. However, experts are saying it’s just a matter of time.
A Market Fired Up
With each new closure announcement, the costs of electricity within the Texas market went up. Once the closures were actually approved and a concrete plan was in place, prices hiked even more.
As the news of the latest ERCOT-tied coal plant retirement hit the market, some took the closure as a sign that the U.S. may be embracing alternative energy sources. Others, though, are not so sure.
According to DeAnn Walker, chairman of the Public Utility Commission, the decrease of ERCOT’s power reserve margin from 8.1 percent to 7.4 percent is “very scary.” The market prices reflect Walker’s sentiment. August energy prices are trading at about 60 percent more than summer 2018’s peak prices.
Not only are prices increasing, but also peak load is increasing and breaking previous records.
In 2018, upon each approval of the coal retirements, the market continued to trend up in price the first part of the year. The energy market grappled with increased volatility based on concerns around shrinking reserve margins.
Reserve Margins: A Hail Mary
Reserve margins are a bit of a smokescreen and are truly a last-ditch effort to cover the spikes in energy demand. Specifically, reserve margins are amounts of excess electricity that are produced above demand that can be used to prevent brownouts and blackouts. The number of available reserve margins are calculated by subtracting the energy demand from the energy capacity.
As each new coal plant closes, the energy production capacity of the market drops.
While ERCOT has a goal reserve margin of 13.75 percent, the anticipated reserve margin for summer 2019 is expected to be 8.1 percent, according to ERCOT’s most recent Capacity, Demand and Reserves Report.
Following the release of ERCOT’s report, Texas Municipal Power Agency (TMPA) announced the closure of the Gibbons Creek coal plant north of Houston, which would drop the forecasted reserves to about 7 percent.
Supply Is Failing Demand
The electricity demand in Texas has been shockingly high for the last two years. While the state is growing faster than the national average and experiencing increased demand, there are concerns that energy production will not be able to keep up.
Unfortunately, the supply-demand relationship has been out of balance for a considerable amount of time. While Texans have enjoyed the resulting lower energy costs, a market the relies on price to incentivize generation is coming up short on new power assets.
To compensate and catch up with the drastic changes in the energy market, prices will be forced to rise… and soon.
Alternative Energy Sources Offer Relief + Freedom
To counterbalance the increased demand for energy as temperatures and populations rise in Texas, our energy use will need to match the sources of energy generation.
Renewable resources can offer relief to businesses financially while also providing stability of resources. Several businesses are employing alternative energy sources by making use of energy storage to reduce grid-dependency or by establishing microgrids to make businesses completely grid-independent.
Rather than feeling intimidated by the concept of “going solar,” now’s the time to make a strategic move to decrease your dependence on the unsteady and highly unpredictable coal-fueled energy market. Working with a trusted energy advisor can help you figure out the best strategy for your business.
Whether you’d be best served by hedging long-term fixed energy prices or making use of a managed index product with seasonal hedges, your business’s bottom line with thank you for years to come for taking action when the time is right.
The best way to protect yourself from the ever-fluctuating state of coal-derived/grid power is to be well-informed, detail your clear action points, and identify measurable metrics to please stakeholders.
Have questions? Leave a comment below or reach out to get one-on-one advice from a trusted energy advisor!
