Closing of Texas Power Plant Leaves Summer Power Prices Uncertain
The Gibbons Creek Generating Station in Central Texas will not operate this summer, as reported here by the Houston Chronicle. The plant’s closure represents a loss of 470 megawatts of power. The closure will severely impact the amount of reserve power available to handle demand surges during the hot summer months, leaving the state with just a 7.4 percent margin instead of ERCOT’s goal of 13.7 percent.
The closing of the Gibbons Creek Generating Station is only the latest in a series of closings of coal-fired power plants. Three Vistra-operated plants in Texas closed last year, removing 4,000 megawatts of power from the state’s reserves. The closings are due in part to the declining prices of natural gas in relation to coal prices.
This closure has left power prices for next summer uncertain, and left retailers in a quandary. With this plant closure, the price for power in Texas for all hours next summer in the futures market has skyrocketed to almost $80 per MWh. In comparison, the hourly spot market for last summer with similar conditions cleared at around $40 per MWh.
These conditions included a booming oil economy and the potential for wind power to be intermittent. Fortunately for end users and retail suppliers alike, the weather didn’t get too hot, and the wind power was much more reliable than many expected last summer. The question now is, what will this summer bring? Changes in the heat, the availability of wind power, or other factors could create power prices as high as $9,000 per MWh.
Retailers and customers alike are forced to either roll the dice again or take a more conservative view and hedge against this risk, knowing full well that they could be overpaying for energy by 50-100% for the summer. It is not a choice anyone wants to make.