In trying to close its coal power plant, Austin encounters obstacles to going green

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Two dates in recent memory have shaped the uncertain future of the Fayette Power Project, a coal-fired power plant near La Grange.

First, on March 26, 2020, the Austin City Council approved an emissions-reduction plan that called for its city-owned utility to shut down its portion of the plant by the end of 2022.

The second, after missing the 2022 goal, was on August 17, 2023, when Austin Energy made $11 million from the plant on that day alone.

Austin has already moved away from fossil fuels faster than the rest of the state, and today, the Fayette plant is responsible for most of Austin Energy’s remaining carbon emissions. But closing the plant in the name of fighting climate change has proven easier said than done.

The fact that it’s still running illustrates the legal, economic and technological obstacles cities face in their quests to eliminate emissions — and the market incentives working against that goal. Rising demand for power in Texas and changes to the state’s electricity market are making coal power – the dirtiest energy source from a carbon emissions perspective – even more financially valuable.

In an August public meeting, Austin Energy General Manager Bob Kahn said it was time for a “course correction” to reevaluate the utility's resource generation plan, which for now includes power generated at the Fayette coal plant. But the city still has an ambitious goal to produce 100% emissions-free electricity by 2035.

Austin is not the only Texas city with such goals. Dallas, Houston and San Antonio all hope to reach net-zero emissions by 2050, in accordance with the goals set out in the 2015 Paris Climate Agreement. (Dallas and Houston don’t have city-run power companies; San Antonio does.) But cities and private utilities are also incentivized to keep costs low for customers, making plants like the Fayette Power Project hard to quit.

There are 13 coal plants currently operating in Texas. Since 2012, seven other have fully decommissioned, and another four plants are set to retire some or all of their units before 2030, according to data from the Energy Information Agency.

Austin Energy is both a power generator and a utility, so it operates on two levels of the state’s electricity market. First, it contracts with wind and solar farms and owns natural gas, coal and nuclear power generation, selling their power wholesale onto the grid. The Electric Reliability Council of Texas manages the grid to maintain balance of supply and demand. Then electric providers, including Austin Energy, buy the power through the market managed by ERCOT and distribute it to Texans.

In the aftermath of the 2021 winter storm, during which demand for power was on track to outpace supply and forced widespread power outages across Texas, ERCOT revamped its market model, changing the economic incentives to encourage the development of energy sources that can quickly add more power to the grid at a moment’s notice. Energy experts call this ‘dispatchability.’

This year, ERCOT created financial incentives to encourage power generators to expand their ancillary services, a system in which power generators hold a portion of their total power generating capacity on the side, ready to provide more to the grid when demand threatens to outpace supply. Over the summer, ancillary services have also been used on especially hot days when the sun is setting and solar power production slows down, said Michael Enger, the director of energy and market operations for Austin Energy.

“Every time you have a new ancillary services product that has to do with dispatchability, power plants that are dispatchable like coal and natural gas benefit from it,” Enger said.

Coal plants take multiple hours to turn on, but once they are on and running below their maximum level, they can quickly increase the amount of power they supply to the grid. Wind and solar are not dispatchable because their ability to generate electricity depends on specific weather conditions. The changes by the grid operator are meant to incentivize construction of more natural gas plants, but they have also made coal more profitable than before the winter storm, experts say.

Austin Energy’s decision to continue using coal power is “all related to money,” said Ed Hirs, an energy economist and University of Houston lecturer.

Hirs said prices on the ERCOT market have been higher this summer thanks to the expansion of ancillary services, because a portion of power that previously would be sold has been taken away to act as a reserve, driving down supply while demand has soared. Through the reserve system, coal plants can also get paid simply for keeping some of their capacity available if called upon. All generators have profited from higher overall prices, but because coal operators can choose when to ramp up production, they can catch the highest price peaks to maximize profits.

“If Austin sold out of that coal plant, it might not be able to replace that energy with anything less expensive,” Hirs said.

For Austin Energy, high wholesale prices cut both ways because while the coal plant is raking in millions, the utility also has to buy enough power to supply the booming city. As a nonprofit public utility, its revenue from selling power to the grid helps cover costs and keeps electricity rates lower for Austin homes and businesses.

“Not having [the coal plant’s] revenues to offset costs would mean those millions of dollars would be passed through to Austin Energy customers,” a spokesperson for Austin Energy told The Texas Tribune.

That dynamic has frustrated environmentalists, a group of which held a rally with about 50 people outside Austin Energy’s headquarters this August before packing a public meeting. For more than an hour of tense public dialogue, representatives from Austin Energy responded to speeches and questions from the group. Many were carrying signs such as one that said “no more coal. It’s killing us,” while others expressed disappointment about the missed 2022 target and urged the utility to divest from fossil fuels more quickly.

Austin Energy is now in the process of updating its resource, generation and climate plan. Cyrus Reed is the conservation director at the Lone Star Chapter of the Sierra Club and chair of a working group of community stakeholders that will make a recommendation to the city’s Electric Utility Commission for the final plan that must be approved by Austin City Council.

“It’s a difficult quandary,” Reed said, because “some of these plants can make money the way our ERCOT market is set up, and yet we really need to get off of coal as soon as possible.”

“The climate crisis is real. We are seeing it right before our eyes.”

Reed said the city needs to reduce costs by cutting the amount of electricity it uses during peak demand periods throughout the summer. He is hopeful that the city could take advantage of federal funding programs through the Inflation Reduction Act to lower the cost of investing in more solar and long-duration battery storage, which can supply dispatchable power to the grid. Currently, most batteries on the grid only run for one to two hours before needing to recharge, and Austin Energy only operates about three megawatts of battery storage.

Not everyone agrees that batteries and renewable energy can replace coal. Peter Hartley, an economics professor at Rice University who has studied energy, said the aspiration to “backup wind and solar with batteries is just pie in the sky and incredibly expensive.”

Instead, Hartley thinks that as more renewable energy gets added to the grid, more dispatchable power like natural gas plants need to also be added.

CPS Energy, the municipally-owned utility of San Antonio announced this year that it would phase out a coal plant by the end of 2028. Instead of developing more batteries or renewable energy, CPS will be converting the plant to run off of natural gas. Earlier this month, in an effort to secure more reserve power ahead of winter, ERCOT asked CPS to bring a coal plant it recently shut down back into operation. CPS refused.

Austin Energy expects a final version of its updated plan to come before the City Council in early 2024. If the city decides to stick with the plan to leave behind its coal plant, it will eventually need to reach a deal with the plant’s co-owner, the Lower Colorado River Authority, which was created by the Legislature, and its board of directors are appointed by the governor.

LCRA has no emissions reduction goals and said in a statement to the Tribune that it “intends to operate FPP as long as it continues to be a reliable, cost-effective source of power.”

“LCRA is running things and calling the shots more than the city of Austin,” said Ilan Levin, a lawyer with the Environmental Integrity Project who previously settled a lawsuit against LCRA in 2012 on behalf of Texas Campaign for the Environment. Setting the 2022 goal “was a political statement,” Levin said. “The city probably knew that it was an unenforceable commitment.”

The idea of the plant’s continued operation is disappointing to some pecan farmers near La Grange, such as Jeffrey Cook. He has claimed since around 2010 that sulfur dioxide pollution from the plant combined with intermittent drought made worse by climate change, have caused a die-off in his orchards from around 900 trees in the 2000’s to 200 now.

“I guess it’s kind of like a cancer,” said Cook, 59, whose 158-acre pecan farm has been in his family since 1925 and sits about 6 miles from the power plant.

Austin Energy and LCRA dispute any connection between the power plant and the decline of pecan farms in the area. “FPP continues to comply with all applicable federal and state regulations regarding emissions,” LCRA said.

Without a pecan harvest in five years, Cook now works repairing and painting houses and has begun digging up large pits on his land to sell the material to gravel companies. He tries to keep the remaining trees alive, but doubts he will ever return to farming for his livelihood.

“It’s hard to keep trying at something when it just gets worse the harder you try,” Cook said.

Disclosure: CPS Energy, Lower Colorado River Authority, Rice University and the University of Houston have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.