Texas Cold Won’t Bring Back Coal

Written by David Nahass, Financial Editor
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The Texas wind that blows, blows not for king coal. The recent electricity debacle is likely to pivot power generation further away.

FINANCIAL EDGE, RAILWAY AGE MARCH 2021 ISSUE: They say hope springs eternal. Tell that to the citizens of the great state of Texas. Winter storm Uri delivered power outage Armageddon beginning around Feb. 14 (Happy Valentine’s Day! Love, Uri). While Texas and its beleaguered, battered and thirsty citizens deservedly got the national headlines, rolling blackouts occurred up the Midwest corridor. At the peak of the storm, on Feb. 16, at least 4.5 million Texans were without power (3.3 million on Feb. 17) with heavy emphasis in the Houston and Austin metro areas.

The causes of the rolling blackouts outside of Texas stemmed from extreme cold (polar vortex-level wind chills) both increasing energy demand and affecting the operability of some renewable generating capacity. In Texas, the cold temps (down to 5 degrees Fahrenheit in Dallas) froze (or made inoperable) generating assets, gas lines (valves) and water pumping stations. Power outages shut down water treatment plants. According to AEP Texas, as power generating assets and fuel distribution networks succumbed to the cold weather (by freezing up and/or stopping operability), the Texas grid manager, ERCOT, shut down the grid to prevent overwhelming demand from causing damage to the grid. (The technical term is “load shedding.”) In fact, to avoid potential damage to the grid, ERCOT, during the worst of the crisis, lengthened the blackouts to avoid overwhelming the grid with power demand even while it was preventing some power generating facilities from restarting. To bring service fully back online, ERCOT had to increase demand with slowly increasing supply. The results for Texans were life threatening.

The role played by renewable energy received airplay during and after the crisis. There have been calls for increased reliance on fossil fuel plants.  This sentiment has been expressed from Texas to Kansas and Missouri. It is easy to look at the situation and believe that a multi-state crisis and significant political outrage could be the blast of cold reality that re-energizes demand and appetite for coal and coal loadings (down in 2021 by 12% YOY after last year’s 25% reduction). 

Unfortunately for investors in coal-carrying railcars, the Texas wind that blows, blows not for king coal. The results of the electricity debacle of 2021 are more likely to move power generation further away from coal and escalate the decline in appetite for those assets.

Critics of wind power will point to the assets in Texas that froze up during the February freeze. Texas’ wind turbine issues were a Texas-sized problem limited mostly, well, to Texas. While Texas is the largest state in terms of wind-generating capacity, among the top ten states are Minnesota, Colorado, Illinois, Iowa and North Dakota. Although those states generate less wind power than Texas, they annually experience winter with great ferocity. 

— What’s next? Changes may include rethinking how to adjust the open market system to control costs during an emergency or winterizing wind towers or investing in a grid structure that is flexible and responsive in a crisis. —

Even wind towers in North Dakota and Minnesota freeze up. That happens (infrequently) at temperatures –20 degrees Fahrenheit and lower. Wind towers sense temperature and cease operation to avoid damage (kinda sounds like ERCOT, no?). Cold temps and weak winds caused the slowdown in wind power in Oklahoma and Kansas. 

From one point of view, it would be easy to take one fact out of context—wind towers can freeze up—and convert it to the idea that the percentage of energy generated from fossil fuel should be increased. That ignores the current trend and the momentum in power generation. During the week of the Texas crisis, Evergy (Kansas City Power and Light and Westar Energy) drafted and proposed a bill (in both Kansas and Missouri) cementing its strategy of retiring older coal-generating assets at the lowest cost to its rate payers. The quotable phrase was: “We’re long on old coal generation. We’re seeing increasing demand from industries and municipalities for access to renewable energy.” Storm notwithstanding, the spark to light the fuse igniting coal-fired generation is already out. This might be the last curtain call for using fossil fuels as a political cover. 

Texas’ free market approach to supplying residential power richly rewarded anyone with fuel or energy during the crisis (Macquarie made more than $200 million selling gas and power). That system will likely undergo some evolution after this crisis. Changes may include rethinking how to adjust the open market system to control costs during an emergency (hint: it doesn’t involve Macquarie-owned Griddy’s $16,000 power bills) or winterizing wind towers or investing in a grid structure that is flexible and responsive in a crisis. Those are more likely results than increasing coal’s market share of Texas’ power generation.

Got questions? Set them free at [email protected]

For more on the storm, see “Texas Transit: Once Frozen, Starts to Thaw,” by Railway Age Contributing Editor David Peter Alan.