North / South America
Coal plant operators find a convenient scapegoat in the EPA
May, 24 2012
(Texas) -- That's becoming the mantra of some Texas coal plant operators, who have found the federal Environmental Protection Agency the legal and financial equivalent of a rented mule - an unpopular bureaucracy they can berate as the cause of all their problems.
The latest example is the White Stallion Energy Center, a planned coal-fired power plant in Matagorda County, which claims it can't find the $2.5 billion in financing it needs because of stricter anti-pollution laws, the Chronicle's Matthew Tresaugue reported earlier this week. White Stallion claims the new EPA rules, which are designed to reduce mercury emissions, have an "unrealistic expectation."
Whether the rules are unrealistic, though, has little to do with White Stallion's financing problems.
What's really hobbled White Stallion are the same problems that have bedeviled generators across the state since last year. As I discussed on Sunday, decade-low prices for natural gas have upended the economics of coal plants.
In Texas, the wholesale price for electricity is essentially tied to natural gas under the state's deregulation law. That used to mean coal plants were a license to print money, because coal cost much less than gas as a generating fuel. So coal-fired generators could produce power at a lower cost and sell it into the wholesale market at the higher gas price.
Taking their lumps
That's no longer the case. As natural gas prices have fallen, the market economics have flipped. It's now cheaper to run natural gas-fired plants than coal, leaving companies like White Stallion on the wrong side of the market.
"I never could see the economics of this being beneficial to anyone," Ed Hirs, a professor of energy economics at the University of Houston, said of the White Stallion project. "Obviously they were looking at gas prices going up at some point."
White Stallion Chief Operating Officer Randy Bird insists that the gas price issues have eased, and the new regulations remain the project's biggest hurdle.
"The low natural gas prices affected power sales in the past," he said in an email message, and that now "the power price from our coal-fired project is very much in the market."
The company had pitched the Matagorda project as bringing to Texas the same low costs for generation as it has in Kentucky. Kentucky, though, remains a regulated market, and coal is readily available near its plants. Texas has higher wholesale and retail prices, and Hirs said costs are higher for shipping the coal to the Matagorda site.
"They were marketing themselves as a low-cost alternative, which is nonsense," he said.
But that's only part of the problem. As most generators will tell you, financing for new power plants in Texas has evaporated not because of environmental regulations but because of the uncertainty of wholesale prices in the deregulated market.
Texas capped wholesale prices at $3,000 a megawatt-hour. The caps were designed to keep consumers' electricity bills from skyrocketing in times of peak demand. But the caps had an unintended consequence. The higher prices that generators get when prices surge in times of shortage generate a return on plants that don't run all the time.
If prices don't have the ability to shoot up, generators can't justify the cost of more plants and lenders don't see a viable return on their investment. That's why the Public Utility Commission is considering raising the cap, even though it would mean higher bills for consumers.
White Stallion isn't the first to blame it's problems on the EPA. Last year, Luminant, a Dallas-based generator, claimed it was shuttering two coal-fired power plants and cutting 500 jobs because of stricter federal environmental regulations. As I pointed out at the time, Luminant's problems had more to do with its own crippling debt structure.
Others don't see it
Ironically, other large generators, such as NRG, have noted that they don't see a material economic effect from the new EPA rules.
Blaming the EPA provides a convenient excuse for other problems, but it ignores the larger reality of the markets.
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