More Natural Gas, Less Coal: Texas’ Electricity Grid Reacts to Low Gas Prices and Regulatory Pressure

November 3, 2015

Emissions regulations and cheap natural gas prices are fueling an increase in the number of natural gas fired power plants in Texas. This trend is likely to continue as regulatory pressure increases. The transition from coal to gas means new gas fired power plants and new technology entering old plants in Texas.

 

Coal fired power plants supplied just 25 percent of the electricity on Texas’ power grid in the first four months of 2015.[i] This percentage is well below the 40 percent from years past.[ii] The reason? Natural gas. Natural gas is trading at two-thirds of its price a year ago, and jumped from 35 to 50 percent of Texas’ power grid.[iii] An increase in natural gas production attributable to hydraulic fracturing is fueling lower gas prices.[iv] Adding insult to injury, stricter rules on emissions are also hurting coal fired power plants, and the White House is showing no signs of letting up.[v] A research firm determined that by 2022 over 14 percent of coal capacity will no longer be available due to shut downs.[vi]

 

On August 3, 2015, the Obama administration submitted its final rule for the Clean Power Plan.[vii] The new rules require states to develop plans by 2018 detailing how they will achieve the emissions reductions.[viii] Further, “states will be expected to begin reaching the goals by 2022 and be fully compliant by 2030.”[ix] The plan encourages zero-emission generators, but is silent on the construction of new gas-fired plants.[x]

 

Some environmentalists argue against new gas-fired plants, but there are a number of reasons why gas fired plants are preferable to coal from a competitive and environmental standpoint.

 

First, natural gas fired plants compete more with coal fired plants than renewable clean energy.[xi] Renewable fuels have a zero fuel price.[xii] Gas and coal have a fuel price – the cost of the gas and coal.[xiii] Electricity is “dispatched on a marginal cost basis (that is, based on the operating cost of the next available increment of energy)….”[xiv] It follows that renewable energy will almost always be put into the grid before gas or coal.[xv] The issue then becomes what will supplement renewable energy when supply is insufficient.[xvi]

 

This issue leads to the second reason gas-fired plants should be welcome. Gas fired plants allow for more flexibility in the integration of renewable energy into a power grid.[xvii] Once coal fired plants are turned on, a certain amount of power generation must be sustained for the production to be efficient.[xviii] Gas plants can more easily adjust production, and therefore can accommodate the introduction of renewable energy into the grid.[xix]

 

Third, “modern, ultra-efficient gas-fired combined-cycle power plants produce only about half the carbon dioxide…emitted by coal-fired power.”[xx] Prophylactic introduction of clean energy into the electricity grid not only helps the environment, but also avoids the risk of economic waste in the event of strong EPA policy.

 

The regulatory and economic climate surrounding electricity production are leading to more gas-fired plants and city utilities planning to move from coal to gas sourced electricity. Cheaper gas prices and a need for water efficient energy production has prompted Exelon Energy to expand two of its Texas plants, one 45 miles south west of Houston and the other near Fort Worth.[xxi] Each plant will be expanded by 1,000 megawatts (enough power for almost 750,000 homes).[xxii] Ground broke this January on a plant east of Austin using GE’s newest gas powered generators.[xxiii] The use of these new GE generators in this plant will be the largest of its kind in North America.[xxiv] Denton Municipal Electric, a city-owned utility, proposed a plan in early October to end purchases of coal sourced electricity by 2019.[xxv] The plan proposes to build a natural gas plant and purchase more energy from wind and solar farms.[xxvi]

 

Regulatory pressure and cheap gas prices are leading to a greater percentage of gas-sourced energy in Texas’ electricity grid. Progressive cities and innovative companies are taking steps to efficiently use the recently recoverable shale gas to move away from inflexible, renewable energy inhibiting and emissions costly coal power plants by building gas-fired power plants.

 

 

[i] James Osborne, On Texas power grid, coal’s prominence is sliding, The Dallas Morning News (May 27, 2015), http://www.dallasnews.com/business/energy/20150526-on-texas-power-grid-coals-prominence-is-sliding.ece.

[ii] Id.

[iii] Id.

[iv] Id.

[v] Id.

[vi] Id.

[vii] http://www2.epa.gov/sites/production/files/2015-08/documents/cpp-final-rule.pdf.

[viii] Michael A. Lindenberger & James Osborne, Texas’ switch to wind, gas power likely to accelerate under EPA proposal (Aug. 4, 2014), http://www.dallasnews.com/business/energy/20150803-epa-proposals-likely-to-accelerate-switch-to-wind-gas-in-texas.ece.

[ix] Id.

[x] Id.; David Spence & Ross Baldick, America’s power grid needs natural gas now more than ever (Sep. 27, 2015), http://fortune.com/2015/09/27/natural-gas-renewable-energy-clean-power-plan/.

[xi] David Spence & Ross Baldick, America’s power grid needs natural gas now more than ever (Sep. 27, 2015), http://fortune.com/2015/09/27/natural-gas-renewable-energy-clean-power-plan/.

[xii] Id.

[xiii] Id.

[xiv] Id.

[xv] Id.

[xvi] Id.

[xvii] Id.

[xviii] Id.

[xix] Id.

[xx] Id.

[xxi] Jordan Blum, Exelon expanding gas-fueled power plants near Houston, Fort Worth (Jul. 9, 2015), http://fuelfix.com/blog/2015/07/09/exelon-expanding-gas-fueled-power-plants-near-houston-fort-worth/.

[xxii] Id.

[xxiii] Penn Energy Editorial Staff, GE Ships final gas engine for New Sky Global power plant in Texas (Sep. 9, 2015) http://www.pennenergy.com/articles/pennenergy/2015/09/ge-ships-final-gas-engine-for-new-sky-global-power-plant-in-texas.html.

[xxiv] Id.

[xxv] Peggy Heinkel-Wolfe, DME pitches plant powered by natural gas (Oct. 5, 2015) http://www.dentonrc.com/local-news/local-news-headlines/20151005-dme-pitches-plant-powered-by-natural-gas.ece.

[xxvi] Id.

Kelton Miller is a 3L at the University of Texas School of Law and will be joining Baker Botts' Corporate Department in Houston next fall.