CPS Energy‘s newest coal plant at Calaveras Lake operated at a $135 million loss in 2015 and 2016, according to a new report by a Massachusetts-based utility research firm. The report states that the public utility would save money if it closed the plant and instead invested in renewable energy sources – by purchasing power off the grid or building more of its own wind and solar capacity.

“Furthermore, CPS Energy could lose $100 million more in the next few years if it continues current operations,” said Avi Allison, an economics expert and author of the report by Synapse Energy Economics, on Thursday. The firm’s report was commissioned by the Sierra Club’s Beyond Coal campaign, which seeks to replace coal-based power production with cleaner energy.

But shutting down the plant southeast of San Antonio is not an option, CPS Energy officials said in response to the report, because it provides reliable, baseline energy that wind and solar cannot.

The J.K. Spruce Power Plant’s two units, Spruce 1 and Spruce 2, came online in 1992 and 2010, respectively. CPS Energy already has installed required sulfur oxide (SOx) scrubbers on both units, and Spruce 2 has what’s called Selective Catalytic Reduction (SCR) to reduce nitrogen oxide (NOx) emissions that contribute to the formation of harmful ozone. Officials are considering investing another $130 million in a SCR system for Spruce 1.

“CPS Energy has done a remarkable job of providing low-cost energy in San Antonio that aligns with its mission,” local Sierra Club Clean Energy Organizer Greg Harman told reporters Thursday. But in the wake of intense weather activity like hurricanes Harvey and Irma attributed to climate change caused by humans and the health risks associated with smog and ozone, he said, “we can’t even describe them as being purely natural disasters. … We have a moral obligation to shut these [coal plants] down.”

Click here to download the report.

“We don’t disagree with report’s overall perspective that the market is moving away from coal,” CPS Energy Chief Operating Officer Cris Eugster told the Rivard Report on Thursday. “The challenge of [retiring the plant] is if you shut it down, without energy storage, you can’t run a city on solar today.”

The utility has made great strides in diversifying its energy portfolio, Eugster said, including next year’s shutdown of the older J.T. Deely 1 and 2 coal-fired units – 15 years ahead of schedule – instead of installing $550 million scrubbers. CPS Energy purchased a natural gas plant in 2010 to offset capacity loss from Deely.

Seven years ago, 80% of electricity consumed by CPS Energy customers was from coal or nuclear power plants. By investing more in renewables, natural gas, and other sources, the 2016 energy portfolio is vastly different: about 30% nuclear, 27.6% coal, 24% natural gas, 10.6% wind, 2% solar, and 4.8% purchased power. CPS Energy also has been able to realize a 3% savings from energy efficiency and demand-response initiatives, Eugster said.

CPS Energy acknowledges that the Spruce units cost more money than they produce energy, he said, but they are still needed to “bridge into renewables.”

When demand can be covered by wind, solar, and other sources, the coal plant is dialed down. But peak load times when the wind isn’t blowing and the sun isn’t shining is when the coal plant needs to be ramped up, Eugster said. And the price of natural gas continues to be a factor.

Several economic factors have to align in order for the Spruce units to become profitable, Allison’s report shows.

“As the price of natural gas declined sharply from 2014 to 2015, Spruce capacity factors dropped to less than 50%,” the report states. “At the same time, lower gas prices have led to lower energy prices in the hours in which Spruce has continued to run, thereby reducing revenues during the hours in which Spruce operates economically.”

The Spruce units have a capacity of 1,400 megawatts.

The main barrier for renewables is the inconsistency of production and lack of storage: Sometimes solar and wind farms produce too much energy, sometimes too little, and there is no way to store excess energy. Pilot programs locally and around the world are attempting to solve the storage dilemma.

CPS Energy was awarded a $3 million grant from the Texas Commission on Environmental Quality last year and is currently piloting a 1-megawatt battery at the Alamo 1 solar farm. It’s also working on $10 million, 10-megawatt storage project.

Adding a costly SCR to Spruce 1, the report states, is a “high-risk” proposition and would only add to the annual losses.

The SCR-versus-retirement decision for the plant will be demonstrative of CPS Energy’s dedication to cleaner energy, said Chrissy Mann of the Sierra Club’s Beyond Coal campaign. “[Will it] continue to invest in coal or look to a future without coal? … This is the perfect time to take that next step.”

Pending enhanced technology and regulations regarding SCRs, Eugster said, “we’re definitely in a wait-and-see mode.”

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Iris Dimmick

Senior Reporter Iris Dimmick covers public policy pertaining to social issues, ranging from affordable housing and economic disparity to policing reform and workforce development. Contact her at iris@sareport.org