Texas Becomes `Most Interesting' Power Market on Coal Shutdowns

(Bloomberg) -- A wave of coal-plant retirements could send power prices in the Lone Star state soaring as soon as next summer.

The forecast for the reserve margin -- or excess supply versus peak summer demand -- has been cut to 11.6 percent for 2018 from 18.9 percent in May, said Beth Garza, vice president of Potomac Economics, which monitors the state grid. Earlier this month, Vistra Energy Corp. said it’s shutting three big power plants that run on coal.

As a result, volatility will increase for power prices next summer, Bill Berg, vice president of wholesale market development at Exelon Corp., said at the Platts Financing U.S. Power conference in New York on Wednesday. Texas has become the “most interesting” power market in a matter of weeks, he said.

Texas Becomes `Most Interesting' Power Market on Coal Shutdowns

Prices for next August on the grid managed by the Electric Reliability Council of Texas may jump to $100 a megawatt-hour, as 4,200 megawatts of generation exits the market, said Steve Piper, director of energy research at S&P Global Market Intelligence.

Vistra’s planned shutdowns were welcomed by NRG Energy Inc.’s Chief Executive Officer Mauricio Gutierrez. “We were pleased that one of our competitors decided it was time for them to retire some units that perhaps weren’t economic,” he said in an interview in New York. “That always rebalances the portfolio.”

Unlike other regions, the Texas grid doesn’t have a reserve target. A reliability study by the grid found one in the 15-percent range was needed amid extreme weather. But no action was taken and the grid has no mandate, Garza said.

Still, others injected a note of caution into the prospect that the shutdowns will translate into higher prices in 2018 and 2019 and whether that’s enough to spur new generation. “There is a lot of skepticism,’’ said Praful Mehta, a New York-based analyst at Citigroup Inc.

©2017 Bloomberg L.P.