Coal, once king in Texas, sees wind as ‘real competition’

Source: Benjamin Storrow, E&E News reporter • Posted: Monday, April 17, 2017

During a visit yesterday to the Harvey mine in Sycamore, Pa., U.S. EPA Administrator Scott Pruitt declared that “the war on coal is done.” But if the regulatory battle is over, the fight in coal’s largest domestic market has just begun.

Wind generation accounted for nearly 23 percent of power generation for the Electric Reliability Council of Texas (ERCOT) in the first quarter of 2017, the Lone Star State grid operator said this week.

The announcement marks the highest quarterly wind penetration in ERCOT’s history and underscores the market challenges facing the coal industry in Texas, where power plants consumed some 86 million tons of the black mineral in 2015, or more than double the next largest coal-consuming state.

“It’s just one more data point in renewables’ march to greater market share,” said Michael Webber, deputy director of the Energy Institute at the University of Texas, Austin.

ERCOT is the primary grid operator in Texas, where it serves 24 million customers.

Robbie Searcy, an ERCOT spokeswoman, said the grid operator has never observed quarterly wind penetration at this level before.

“I think it is fair to say this is a trend we’re seeing,” she said. “Not only are you seeing these percentages of wind, wind capacity continues to grow in ERCOT.”

There is a list of caveats that come with the new data, which were released Monday as part of ERCOT’s monthly demand and energy report. First, the winter is the windiest time of year in Texas. It is also a season when power demand wanes and many plants shut down for maintenance.

It also follows a rebound in Texas coal use. A slight increase in natural gas prices has boosted coal’s fortunes in the state, with coal (31 percent) edging out natural gas (29 percent) as ERCOT’s primary source of electricity generation in the first quarter of 2017. Year-over-year, ERCOT’s first-quarter coal use increased 58 percent.

The increase in wind “is a trend you’d prefer not to deal with, but it’s not a trend you’re going to pace all night sweating over,” said Jim Thompson, director of IHS Coal, a consultancy.

Coal burned at Texas plants is particularly competitive because it largely comes from the Powder River Basin (PRB) in Wyoming and Montana, which boasts the lowest mining costs in the nation, he said.

Texas wind is nevertheless “real competition,” Thompson said. “The more generation that renewables take, the smaller the pie coal and gas are vying for.”

Natural gas has long been coal’s most formidable competition in Texas. Last year, gas accounted for 44 percent of ERCOT’s electricity generation. Coal and wind represented 29 percent and 15 percent, respectively.

But wind is increasingly competitive. Because turbine operators have no fuel costs, their power is generally dispatched before coal and gas.

ERCOT’s installed wind capacity has nearly doubled since 2010, leaping from 9,400 megawatts seven years ago to 18,589 MW today. In 2015, wind surpassed nuclear to become the grid operator’s third-largest power source.

And ERCOT’s installed capacity could surpass 28,000 MW by next year if all the projects with interconnection agreements with the grid operator are built.

“This is pushing coal off the grid,” said Daniel Cohan, an associate professor of civil and environmental engineering at Rice University.

“Texas is far and away the largest purchaser of Wyoming coal, PRB coal. As these coal plants get used less and less, many will retire in the next few years. PRB mines are losing their biggest customers,” Cohan said.

He pointed to a study by the Brattle Group, which predicted coal would fall from 34 percent of Texas power generation in 2013 to 6 percent in 2035.

Wind’s rise in Texas has been aided by the expansion of transmission capacity and market reforms. Where ERCOT once set a series of regional prices, it now has thousands of prices around the state.

That has helped the market adjust to wind’s variability and alleviated concerns about its reliability to the grid, Webber said.

“Wind is a big player,” he said.