Electricity Prices Plummet as Gas, Wind Gain Traction and Demand Stalls
The rapid rise of wind and natural gas as sources of electricity is roiling U.S. power markets, forcing more companies to close older generating plants.
Wholesale electricity prices are falling near historic lows in parts of the country with competitive power markets, as demand for electricity remains stagnant while newer, less-expensive generating facilities continue to come online.
The changing American electricity landscape is pressuring power companies to shed unprofitable plants and reshape their portfolios to favor the new winners. Texas provides a clear example.
Citing low gas prices and the proliferation of renewables such as wind and solar, Vistra Energy Corp., a vestige of the former Energy Future Holdings Corp., said it would retire three coal-fired facilities in Texas by early next year and that it plans to merge with independent power producer Dynegy Inc.
Exelon Corp., the country’s largest owner of nuclear power plants, placed its Texas subsidiary under bankruptcy protection earlier this month, saying that “historically low power prices within Texas have created challenging market conditions for all power generators.”
The average wholesale power price was less than $25 per megawatt hour last year on the grid that coordinates electricity distribution across most of Texas, according to the operator, the Electric Reliability Council of Texas. A decade ago, it was $55.
Prices have fallen a similar amount on the PJM Interconnection LLC, the power grid that serves some or all of 13 states, including Pennsylvania and Ohio. A megawatt hour there traded for $29.23 last year, the lowest level since 1999, as far back as the grid’s independent market monitor tracks prices.
The price drop at PJM reflects the construction of dozens of new gas-burning power plants, spurred by the abundance of the fuel due to the shale drilling boom. In 2006, 8% of the electricity in PJM was generated by natural gas. In 2016, it was 27%.
Weak demand for electricity also has played a role, as Americans purchase more energy-efficient appliances and companies shave power consumption to cut costs. Last year, power demand in PJM grew 0.3% after falling the two previous years.
The resulting competition — by more power plants to buyers of roughly the same number of megawatts — has most-acutely impacted older coal and nuclear plants, which are struggling to provide competitively priced power. It has even begun to affect older natural-gas-fired facilities that have higher costs.
“Generators are just fighting for existing market share,” said Ari Peskoe, a senior fellow in electricity law at Harvard Law School. “The aging fleet of coal and nuke generators, combined with low prices, makes this intense.”
FirstEnergy Corp., an Akron, Ohio-based utility, announced late last year it was exiting competitive power markets. It is selling four natural-gas plants and hopes to sell coal and nuclear plants that provide power in the PJM wholesale marketplace.
This summer, power company NRG Energy Inc. announced a transformation plan that included selling up to $4 billion in power generation.
West of the Mississippi River, power markets also have been upended by the rapid growth of wind, as the cost of generating power from wind turbines is falling.
In 2016, all of the new generation built in the Southwest Power Pool, a grid that covers an area from Louisiana to Montana, was wind, gas and solar. The vast majority of the retirements were coal and nuclear plants.
Wind is the fastest-growing source of power on Texas’ grid. Last year, wind generated 15% of the electricity in ERCOT, more than nuclear power, which accounted for 12%. By 2019, researchers at the University of Texas at Austin’s Energy Institute expect wind to surpass coal as ERCOT’s second-largest source of electricity.
“Solar and wind are now competitive with natural gas-fired generation,” said Curt Morgan, Vistra’s chief executive. Mr. Morgan said that while he thinks natural gas will be the “workhorse” of U.S. electricity markets for at least the next decade, in Texas “I think it’s going to be a while before you see another gas plant built in ERCOT.”
Last week, Siemens AG said it was cutting 6,900 jobs, in large part because it has overestimated demand for its giant power turbines.
The changes have primarily been felt in competitive power markets, which exist in many parts of the U.S., including California in addition to Texas and the Midwest. In those areas, wholesale electricity is sold through daily auctions that favor the least-expensive sources of power, and it is subsequently purchased by utilities and others.