Operating CPS Energy’s J.K. Spruce coal plant cost $121 million over the last five years compared to alternative forms of energy and could continue to remain unprofitable into the 2020s, according to an economic analysis commissioned by the Sierra Club.
A report by Massachusetts-based Synapse Energy Economics used publicly available data to estimate the financial performance of the two Spruce coal-fired units – Spruce 1, which came online in 1992, and Spruce 2, which began operating in 2010.
In an energy market transformed by relatively cheap natural gas, wind, and solar power, the plant performed poorly in the Texas energy market between 2013 and 2018. Spruce 1 lost $37 million relative to the market in those years. Spruce 2 lost $84 million compared to other alternatives in those years.
However, the analysis also found that Spruce could become profitable by the mid-2020s and stay that way into 2040 as natural gas prices rise, among other major assumptions. From 2023 to 2040, Spruce 1 and 2 could produce average net revenues of $20 million and $36 million per year, respectively.
Even so, replacing Spruce with wind, solar, and battery storage would result in $85 million in savings each year from 2026 through 2040, the report states.
“What we learned from this analysis is that continued reliance on the coal plants is pretty risky,” said Chrissy Mann, senior representative for the Sierra Club’s Beyond Coal campaign, in a conference call Wednesday. “A lot of possible outcomes have to line up just so in order for the coal plants to remain competitive with the market.”
The report is the second economic analysis of the Spruce plant that Synapse did on behalf of the Sierra Club. Some of its members are part of Climate Action SA, a coalition pushing CPS Energy to abandon coal by 2025 and natural gas by 2030.
Since the first report in 2017, the Texas power market has become even tighter, with the potential for price spikes as gaps between supply and demand narrow, CPS Energy Chief Operating Officer Cris Eugster said in a Tuesday phone interview. That means the utility’s existing assets are critical for insulating CPS Energy customers from electricity price spikes, he said.
“Existing assets are really, really important as we transition to this world of renewables,” Eugster said. “In some ways, they’ve gotten more valuable versus less valuable since their last report. Now, how long that value lasts, how that transitions over to a world of renewables, there’s a lot of uncertainty.”
Eugster said that’s why the utility’s Flexible Path, unveiled last year, “is open to all options and all considerations.” He also touted CPS Energy’s environmental commitment, including the rapid deployment of wind and solar and its shuttering of its oldest coal-fired units late last year.
Eugster also pointed to CPS Energy’s bumper year selling power onto the state grid last year. The municipally owned utility made $168 million in net income last year, largely driven by wholesale markets. (Utility officials updated that figure after saying in January that CPS Energy was on track to have made $139 million last year.)
“Having physical assets that produce power today protects our customers against those high price spikes and allows us to participate in that wholesale market and help the rest of Texas,” Eugster said.
Though the report centered mainly on money, several speakers on Tuesday’s call focused on how the pollution streaming from Spruce’s stacks affects public health and the global climate.
Adelita Cantu, an associate professor of nursing at UT Health San Antonio, spoke about the ties between coal and chronic lung conditions like asthma and bronchitis, as well as heart disease.
“Anything that can limit the burning of coal is going to improve the health not only of children with asthma in San Antonio, but everyone that lives in San Antonio across their lifespan,” Cantu said.
These issues are relevant as San Antonio’s newly elected City Council considers whether to approve the City’s Climate Action and Adaptation Plan. Among other proposals, the plan’s draft version calls for CPS Energy to move away from all energy sources that emit carbon pollution by 2050. Officials have said they plan to release a final version by the end of this month.
Aside from the economics, the Synapse report commented on what it called CPS Energy’s “opaque” method of planning its energy mix compared to the “robust and transparent resource planning processes” of other publicly owned utilities, such as the Los Angeles Department of Water and Power and Austin Energy.
Asked why the utility doesn’t release its own numbers on the financial performance of each plant, Eugster said that’s because it operates in a competitive market.
“We basically buy and sell power each day, and on our wholesale, it is very much a competitive market,” he said. “If we disclose that information, our competitors have that information, and that would affect the pricing we might get.”
Synapse cited CPS Energy’s own numbers for the capacity mix of renewables that would be needed to replace Spruce by 2025 – 1,000 megawatts of wind, 850 megawatts of solar, and 450 megawatts of battery storage. Mann said the utility provided those numbers to environmentalists in a meeting last July.
Utility officials have not discussed that scenario publicly, even as they have solicited public input over its Flexible Path unveiled last year. As part of that plan, CPS Energy is moving up retirement of Spruce 1 from 2047 to 2030, but continuing to run Spruce 2 through the 2040s.
On New Year’s Eve last year, the utility mothballed its older Deely coal-fired units, a closure timeline that officials say was 15 years ahead of Deely’s original retirement schedule. After a strong year selling power onto the state grid, CPS Energy’s projected net revenue is expected to drop from $168 million to $29 million as of the end of April.
Synapse’s study involved the consultant’s custom-built cash-flow model and data from the Texas grid operator and the U.S. Energy Information Administration, among other sources. It found that the two Spruce units combined will continue to lose $30 million from 2019 through 2022 before becoming profitable again in 2023.
That future profitability is based on some big assumptions: that natural gas prices will rise slowly, that the cost of coal will stay stagnant or even come down, and that governments won’t crack down on coal plants through more stringent regulations.
“Under a best case where the assumptions line up favorably for those units, they may become economic over time,” said Avi Allison, a senior associate with Synapse. “But if you start peeling back some of those assumptions … then the economics of those units deteriorate pretty quickly and they start to seem like pretty risky investments.”
Rivard Report intern Laura Morales contributed to this report.
