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Operating costs of Luminant coal plants run generally higher than ERCOT prices

Operation and maintenance costs of three large coal-fired plants that Luminant Generation Co. LLC has said it will shut down have generally been running higher than wholesale power prices in the Electric Reliability Council of Texas market, according to an S&P Global Market Intelligence analysis.

Luminant, a unit of Vistra Energy Corp., in two separate announcements earlier in October said that it will shut down its Monticello ST, Big Brown and Sandow power plants. The three have a combined generating capacity of 4,363 MW and together produced more than 22 million MWh in 2016, with heat rates above 10,000 Btu/kWh.

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Day-ahead around the clock prices at ERCOT's LZ North hub in ERCOT averaged $22.15/MWh in 2016 and have been a bit higher this year, at $24.52/MWh through September.

Operation and maintenance costs at the three plants Luminant has said it will retire have, on a yearly basis, run higher than the average wholesale power price, though in some months, mainly summer, power prices have been higher than O&M costs. At Big Brown, O&M costs averaged $23.59/MWh in 2016, and $26.93/MWh in 2017. At Sandow, where costs are a total of the individual costs at Unit 4 and Unit 5, O&M costs averaged $30.63/MWh in 2016 and $27.23/MWh in 2017. Sandow had been supported by a power supply contract with Alcoa Inc. to supply a nearby aluminum smelter, but that contract was terminated along with the retirement announcement. At Monticello ST, costs averaged $28.69/MWh last year and $29.59/MWh through September of this year.

S&P Global Market Intelligence's Generation Supply Curve is a unit-level production cost model that uses regression analysis to model operating and maintenance expenses for power plants.

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The retirements must still be approved by ERCOT, which will examine their potential effect on reliability of the grid. Despite the anticipated loss of the coal-fired capacity, all of which is scheduled to be retired by February 2018, ERCOT is expecting much additional capacity be added to its grid. From the beginning of 2017 through 2020, ERCOT is scheduled to see 19,347 MW of gas-fired capacity, 11,847 MW of wind capacity and 3,172 MW of solar capacity come online. This planned influx of capacity corresponds with increasing investment in each of these fuel types in the 2017-2020 period compared to the previous 2013-2016 period, according to S&P Global Market Intelligence analyses completed earlier this year.

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If ERCOT does approve the retirements, Vistra would become the latest company to reduce its coal-fired power generation activity in the market. Exelon Corp. and Dynegy Inc. are separately pursuing the sale of their own coal assets in the region, with Dynegy said to be in talks with Vistra about merging.

Vistra would still retain large amounts of coal capacity in ERCOT, notably at the 2,455-MW Martin Lake and 1,665-MW Oak Grove Project coal plants. These coal plants had significantly lower modeled O&M costs in 2016 compared to their counterparts slated for retirement, with Martin Lake at $20.55/MWh in 2016 and Oak Grove at $17.17/MWh.

NRG Energy Inc. also owns coal capacity in ERCOT, notably the 2,499-MW W.A. Parish 5-8 and 1,689-MW Limestone plants.

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To see a list of coal units that retired from 2012 through 2017, click here.

To see a list of planned coal unit retirements from 2017 through 2021, click here.

To see a list of coal unit fuel type conversions, click here.