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Vistra to build more renewables, retire more coal en route to net-zero by 2050

Highlights

To spend $1.15 billion by 2022

Closing plants in Illinois, Ohio

Houston — To help achieve net zero carbon dioxide emissions by 2050, Vistra plans to spend $1.15 billion on solar and storage projects in California and Texas by 2022 and retire an additional 6.8 GW of coal assets by 2027, including all in Illinois and Ohio, the company said Sept. 29.

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Vistra President and CEO Curt Morgan in an investor call said his company is "well positioned to participate in the renewable and battery storage transformation."

Vistra also accelerated its greenhouse gas emissions cut targets to 60% below the 2010 baseline by 2030 from 50% and to net zero by 2050 from 80%.

Morris Greenberg, S&P Global Platts Analytics managing director of North American power, said these goals are likely feasible.

"Following late 2019 coal retirements, CO2 emissions are at 56.5% of 2010 levels," Greenberg said. "Emissions would only need to fall by 28 [million metric tons] to reach the target. The Midwest coal units planned for retirement accounted for about 20 mmt last year. Reaching net zero in 2050 will be far more challenging but is feasible with renewables and storage cost declines.".

Vistra plans to add the following capacity in California and Texas by 2022, at a combined cost of about $1.15 billion:

  • 2020: California: 300 MW of energy storage by end of year
  • 2021: California: 100 MW more energy storage
  • 2021: Texas: 278 MW of solar
  • 2022: California: 36.25 MW more energy storage
  • 2022: Texas: 260 MW of energy storage
  • 2022: Texas: 400 MW more solar

With these additions to Vistra's existing carbon-free assets, including the 2.3-GW Comanche Peak Nuclear Power Plant, the company would have 4,000 MW of zero-carbon generation.

Coal retirements

The company also announced its next phase of coal plant closures in Illinois and Ohio with a combined capacity of more than 6.8 GW, by 2027. The plan has the following timeline:

  • End of 2022: Edwards Power plant, Bartonville, Illinois, 585 MW, in the Midcontinent Independent System Operator.
  • End of 2025: Baldwin Power Plant, Baldwin, Illinois, 1,185 MW; Joppa Power Plant, Joppa, Illinois, 1,002 MW (plus 239 MW of gas turbines), both in MISO.
  • End of 2027: Newton Power Plant, Newton, Illinois, 615 MW, in MISO; and Kincaid Power plant, Kincaid, Illinois, 1,108 MW, Miami Fort Power Plant, North Bend, Ohio, 1,020 MW, and Zimmer Power Plant, Moscow, Ohio, 1,300 MW, all three in the PJM Interconnection.

"These plants, especially those operating in the irreparably dysfunctional MISO market, remain economically challenged," Vistra said in a Sept. 29 statement. "Today's retirement announcements are also prompted by upcoming Environmental Protection Agency filing deadlines, which require either significant capital expenditures for compliance or retirement declarations."

Kieran Kemmerer, a Platts analytics power market analyst, said the retirements "would tighten energy and capacity markets" in MISO and PJM.

"This is especially true of the Kincaid plant if the Byron and Dresden nuclear plants (also in the Com Ed load distribution area) retire," Kemmerer said. "It is not clear whether Illinois will permit construction of new combined cycles given their clean energy goals."

Morgan said that Vistra's plans should generate between $900 million and $1 billion in incremental EBITDA by 2030, representing about 15% or more total annual returns per share.

Joshua Rhodes, a University of Texas Energy Institute's Webber Energy Group research associate, said the portfolio shift represents "a realistic look at where the world is headed. Also, many coal plants are reaching the ends of their useful lives anyways, so its either invest in them, which no one wants to do, or move on to the new best technology, like we have always done," he said.

Vistra also announced that it is on track to beat the midpoint of its previous 2020 earnings guidance, between $3.285 billion and $3.585 billion, and now expects EBITDA in the range of $3.485 billion to $3.685 billion.

In 2021, Vistra advised that it expects EBITDA to range from $3.075 billion and $3.475 billion, with the more modest earnings guildance reflecting the effects of one-time capital expenses and continued risk from the novel coronavirus pandemic.

"COVID-19 continues to create economic uncertainty potentially into at least the first half of 2021," Morgan said. "While Texas [power] demand in 2020 is back to pre-COVID-19 levels, COVID-19 did eliminate approximately one year of demand growth. We expect some renewable development will be delayed as a result. So in our view, the full impacts of COVID- 19 are still being digested by the market."

ERCOT 'fundamentally tight'

The Electric Reliability Council of Texas summer 2021 forward curves do not yet reflect the fundamentally tight power market conditions as perceived by Vistra, Morgan said.

On Sept. 28, S&P Global Platts assessed the ERCOT North Hub August 2021 on-peak contract at $114.93/MWh. ERCOT North Hub day-ahead on-peak power prices $51.30/MWh in August 2020 and $182.41/MWh in August.

"So 2019 was -- I think -- it was not an overly hot summer, but we saw good scarcity," Morgan said. "And that was a combination of sort of normal power plant outages that you expect to see in the summers. And then we we had some days where wind was very low. ... We saw less scarcity events in 2020. And it doesn't take much at all to move that, and you can see $1,000-plus/MWh events out there or you can see $40 or something like that."

Another issue in 2020 was that the 2020 had more scarcity events over the weekend, when more generation was on outage status and wind died down, Morgan said.

"That kind of opened our eyes and gave us some confidence in our fundamental modeling that this market is still fundamentally tight," Morgan said.