November 30, 2017 Read More →

Transition Is Enveloping U.S. Electricity Sector

Wall Street Journal:

The rapid rise of wind and natural gas as sources of electricity is roiling U.S. power markets, forcing more companies to close older generating plants.

Wholesale electricity prices are falling near historic lows in parts of the country with competitive power markets, as demand for electricity remains stagnant while newer, less-expensive generating facilities continue to come online.

The changing American electricity landscape is pressuring power companies to shed unprofitable plants and reshape their portfolios to favor the new winners. Texas provides a clear example.

Citing low gas prices and the proliferation of renewables such as wind and solar, Vistra Energy Corp., a vestige of the former Energy Future Holdings Corp., said it would retire three coal-fired facilities in Texas by early next year and that it plans to merge with independent power producer Dynegy Inc.

Exelon Corp., the country’s largest owner of nuclear power plants, placed its Texas subsidiary under bankruptcy protection earlier this month, saying that “historically low power prices within Texas have created challenging market conditions for all power generators.”

The average wholesale power price was less than $25 per megawatt hour last year on the grid that coordinates electricity distribution across most of Texas, according to the operator, the Electric Reliability Council of Texas. A decade ago, it was $55.

Prices have fallen a similar amount on the PJM Interconnection LLC, the power grid that serves some or all of 13 states, including Pennsylvania and Ohio. A megawatt hour there traded for $29.23 last year, the lowest level since 1999, as far back as the grid’s independent market monitor tracks prices.

The price drop at PJM reflects the construction of dozens of new gas-burning power plants, spurred by the abundance of the fuel due to the shale drilling boom. In 2006, 8% of the electricity in PJM was generated by natural gas. In 2016, it was 27%.

Weak demand for electricity also has played a role, as Americans purchase more energy-efficient appliances and companies shave power consumption to cut costs. Last year, power demand in PJM grew 0.3% after falling the two previous years.

In competitive regions in places like California, wholesale electricity is sold through daily auctions that favor the least-expensive sources of power.

The resulting competition—by more power plants to buyers of roughly the same number of megawatts—has most-acutely impacted older coal and nuclear plants, which are struggling to provide competitively priced power. It has even begun to affect older natural-gas-fired facilities that have higher costs.

An analysis by investment bank Lazard shows that on an unsubsidized basis and over the lifetime of a facility in North America, it costs about $60 to generate a megawatt hour of electricity using a combined-cycle natural-gas plant, compared with $102 burning coal and nearly $150 using nuclear. By that criteria, Lazard estimates electricity from utility-scale solar and wind facilities is now even cheaper than gas.

A megawatt hour of electricity from utility-scale crystalline solar comes in at $49.50 and wind at $45. That metric carries an important caveat, however: It doesn’t factor in that wind and solar are more intermittent producers of power than conventional generation sources, since the sun doesn’t always shine and the wind doesn’t always blow.

“It’s too late,” David Schlissel, a director at the Institute for Energy Economics and Financial Analysis, said of the Trump administration’s proposals. “The lesson is if you don’t put your thumb on the scale then gas and renewables will out-compete coal.”

More: Electricity Prices Plummet as Gas, Wind Gain Traction and Demand Stalls

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