March 2, 2007,
AMTXU intends to scrap plans for 8 coal-fired plants, but other utilities likely to fill void
By TOM FOWLERCopyright 2007 Houston Chronicle
TXU ends plans for 8 coal plants; void will be filled
Other suitors are interested in buying TXU
Energy forecast -->
TXU's plans to cut eight of 11 new coal plants in Texas may appear to leave a hole in the state's future power supply, but it's unlikely to remain unfilled for long, say market observers.
Texas is one of the most attractive markets in the country for building power plants — be they coal, natural gas, wind or even nuclear — thanks to our high growth and high wholesale prices.
Currently there's about 70,000 megawatts of generating capacity on the Texas power grid serving the most populated areas, including Austin, Dallas, Houston and San Antonio, and if all the projects in the development pipeline were built it could more than double the capacity in the coming decades, according to state officials.
Between now and 2012 there's a little more than 10,000 megawatts of power that companies have said they plan to build to meet the state's growing needs. One megawatt can power up to 800 homes.
"The incentive for new plants is already there in Texas," said Denise Furey, a senior director with Fitch Ratings in New York. "The power prices are very high and the reliability issues are serious enough to keep interest high."
A likely sign of things to come is this week's announcement by Calpine that it will add 400 megawatts of capacity to its Deer Park plant and consider more expansions at its other operating plants in Texas.
And NRG Energy, the owner of several plants around Houston, also is expected to announce expansions to its gas-fired plants in the coming months.
Significant revisionUp until about a year ago the state's reserve margin — the difference between the peak power demand and total power supply — was looking pretty good. State power grid operators say the margin should be above 12.5 percent. But the total power supply has been as much as 35 percent higher than the peak demand as recently as 2002, thanks in large part to the boom in new power-plant construction that followed the 1999 deregulation of the state's power markets.
But in June 2006 the Electric Reliability Council of Texas, the body that oversees the power grid for most of Texas, made a significant revision to its annual reserve report, increasing Texas' expected economic growth and future power demand. This pushed projections for the reserve margin below safe levels, to 11.4 percent in 2008, 8.5 percent in 2009 and 7.2 percent in 2010.
The ERCOT revision, and an unexpected spike in power demand on April 17 that led to rolling blackouts in parts of Texas, were used as a rallying cry in support of TXU's plan to build 8,200 megawatts of coal powered capacity.
But Texas was not in imminent danger of running out of power, despite the debate about TXU's coal plans in the last year, said Anthony Damiano, power research manager for consulting firm Wood Mackenzie.
ERCOT's reserve margin report is simply a snapshot of the power picture at a given moment that uses very conservative criteria. New power plants aren't added into the equation until they have air permits from state regulators, for example, and for a completed wind power project only 2.6 percent of capacity is included.
The margin also doesn't show the roughly 6,000 megawatts of power plants that have been mothballed but can come back online in an emergency.
''It was more a matter of public perception," Damiano said.
TXU also helped create the need its coal plants were to fill.
The company previously told ERCOT it was planning to retire up to 3,200 megawatts of natural gas-fired capacity from 2007 to 2009. These were older, less efficient and less profitable plants the state's deregulation laws allow companies to take offline if it's shown their absence won't threaten grid integrity.
The reserve margin is usually updated just once a year, but earlier this month ERCOT President and CEO Sam Jones told lawmakers a recalculation of the reserve margin shows the system will remain well above the limit at least until 2009, a year later than the May 2006 report.
Not included in that update, however, is Calpine's plant expansion or TXU's announcement this week that it is willing to bring up to 1,400 megawatts of mothballed power plants back online if ERCOT asks.
Demand could dropSo what will take the place of TXU's previously planned coal plants, at least in the next five years? The best bet will simply be other coal plants and more of what Texas already has in spades — gas-fired plants.
About 71 percent of the state's power capacity is gas-fired, but those plants generated just 46.3 percent of the state's power in 2006 since they are less profitable to operate than coal or nuclear plants.
Of the 10,000 megawatts of capacity that companies have said they will build by 2012 about 4,970 megawatts are expected to come from coal, 2,900 megawatts will come from wind and 2,850 from gas.
But when it comes to longer-term projects under consideration, nuclear power seems to have the greatest interest. ERCOT has received inquiries for up to 25,000 megawatts of new nuclear power, followed by 20,600 megawatts of wind power, 15,900 megawatts of coal and 13,200 megawatts of natural gas.
It's also possible recommendations to expand the state's conservation efforts could cut long-term power plant demand.