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There are two dates in recent memory that helped shape 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 the city-owned utility to close 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 combating climate change has proven easier said than done.
The fact that it remains in operation illustrates the legal, economic and technological hurdles that cities face as they seek to eliminate emissions – and the market incentives that work against that goal. Rising energy demand in Texas and changes in the state’s electricity market are reasons why coal power – the dirtiest energy source from a carbon emissions perspective – is more financially valuable.
At a public meeting in August, Bob Kahn, general manager of Austin Energy, said it was time for a “course correction” to reevaluate how quickly the city could divest from coal power. But the city still has an ambitious goal of producing 100% emissions-free electricity by 2035.
Austin isn’t the only Texas city with such goals. Dallas, Houston and San Antonio all hope to reach net-zero emissions by 2050, according to goals set in the 2015 Paris climate agreement. (Dallas and Houston do not have city-run energy companies; San Antonio does.) But cities and private utilities are also incentivized to keep costs low for customers, making it difficult to discontinue plants like the Fayette Power Project.
There are 13 coal plants currently operating in Texas. Since 2012, seven more coal-fired plants have been completely retired, and four more are scheduled 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 at two levels of the state’s electricity market. First, it owns wind and solar farms alongside natural gas, coal and nuclear generation and sells wholesale power onto the grid. The Electric Reliability Council of Texas manages the grid to keep supply and demand in balance. Electricity providers, including Austin Energy, then buy the power through the market run by ERCOT and distribute it to Texans.
In the wake of the 2021 winter storm, during which energy demand was on track to exceed supply and led to widespread power outages across Texas, ERCOT revamped its market model, changing economic incentives to encourage the development of energy sources that can add More quickly power to the grid at any moment. Energy experts call this “distributable”.
This year, ERCOT created financial incentives to encourage power generators to expand their ancillary services, a system in which power generators keep a portion of their total power generation capacity on the side, ready to provide more to the grid when demand threatens to outstrip supply. During the summer, additional services were also used on particularly hot days when the sun goes down and solar production slows, said Michael Enger, director of energy and market operations at Austin Energy.
“Every time you have a new ancillary service product related to dispatchability, dispatchable power plants like coal and natural gas benefit from it,” Enger said.
Coal plants take several hours to run, but once they are up and running below maximum level, they can quickly increase the amount of energy they provide to the grid. Wind and solar energy cannot be distributed because their ability to generate electricity depends on specific weather conditions. Experts say the changes made by the grid operator are intended to stimulate the construction of more natural gas plants, but they have made coal more profitable than it was before the winter storm.
Austin Energy’s decision to continue using coal power “is all about money,” said Ed Herz, an energy economist and lecturer at the University of Houston.
Prices in the ERCOT market were higher this summer thanks to the expansion of ancillary services, Hers said, because part of the power that would previously have been sold was taken away to serve as reserve, resulting in supply falling while demand rose. Through the reserve system, coal plants can also get paid to keep some of their capacity available if they are required to do so. All power generation companies have benefited from higher overall prices, but because coal operators can choose the right time to increase production, they can catch the highest price peaks to maximize profits.
“If Austin sells that coal plant, it may not be able to replace that energy with anything less expensive,” Herz said.
For Austin Energy, higher wholesale prices cut both ways, because while the coal plant makes millions, the utility also has to buy enough energy to supply the booming city. As a nonprofit public utility, its revenue from selling power to the grid helps cover costs, fund city services and keep electricity rates low for Austin homes and businesses.
“The lack of (coal plant) revenue to offset costs means those millions of dollars will be passed on to Austin Energy customers,” an Austin Energy spokesperson told the Texas Tribune.
This dynamic has frustrated environmentalists, a group of whom organized a rally of about 50 people outside Austin Energy headquarters last August before a public meeting rally. Over the course of more than an hour of tense public dialogue, Austin Energy representatives responded to the group’s letters and questions. Many carried signs such as one that said “No more coal. It’s killing us,” while others expressed disappointment about not meeting the 2022 target and urged utilities to phase out fossil fuels more quickly.
Austin Energy is now updating its resource, generation and climate plan. Cyrus Reed is the conservation director for the Lone Star Chapter of the Sierra Club and chair of a work group of community stakeholders that will make a recommendation to the city’s Electric Utility Commission on the final plan that must be approved by the Austin City Council.
“It’s a tough quandary, because some of these plants are able to make money the way the ERCOT market is set up, and yet we really need to get off coal as quickly as possible,” Reed said.
“The climate crisis is real. We are seeing it right before our eyes.”
Reed said the city needs to cut costs by reducing the amount of electricity it uses during peak demand periods throughout the summer. He hopes the city can leverage federal funding programs through the Inflation Reduction Act to lower the cost of investing in more solar and long-duration battery storage, which can provide dispatchable power to the grid. Currently, most batteries on the grid only run for an hour or two before needing to be recharged, and Austin Energy is only running about three megawatts of battery storage capacity.
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 “back up wind and solar with batteries is just a pipe dream and incredibly expensive.”
Instead, Hartley believes that as more renewable energy is added to the grid, more dispatchable energy such as natural gas plants should also be added.
CPS Energy, a San Antonio city-owned utility, 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 convert the plant to get rid of natural gas. Earlier this month, in an effort to secure more backup power before winter, ERCOT asked CPS to bring its recently shut down coal plant back into operation. CPS refused.
Austin Energy expects the final version of its updated plan to go before the City Council in early 2024. If the city decides to stick with the plan to abandon its coal plant, it will eventually need to reach an agreement with the plant’s co-owner. , the Lower Colorado River Authority, was created by the Legislature, and its board of directors is appointed by the governor.
LCRA does not have emissions reduction targets, and said in a statement to the Tribune that it “intends to operate the FPP as long as it remains a reliable and cost-effective source of energy.”
“The LCRA is running things and making decisions more than the city of Austin,” said Ilan Levin, an attorney with the Environmental Integrity Project who previously settled a lawsuit against the LCRA in 2012 on behalf of the Texas Campaign for the Environment. Setting the 2022 goal “was a political statement,” Levine said. “Maybe the city knew it was an unenforceable obligation.”
The idea of the plant continuing to operate is disappointing to some pecan growers near La Grange, like Jeffrey Cook. He has claimed since about 2010 that plant-generated sulfur dioxide pollution, combined with intermittent drought exacerbated by climate change, caused the death of about 900 trees in his orchards in the 2000s to 200 now.
“I think it’s like cancer,” said Cook, 59, whose family has owned the 158-acre pecan farm since 1925 and is located about 6 miles from the power plant.
Austin Energy and LCRA oppose 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 is now repairing and painting houses, and has begun digging large holes on his land to sell the material to gravel companies. He tries to keep the remaining trees alive, but doubts he will return to farming for his living.
“It’s hard to keep trying to do something when it gets worse the harder you try,” Cook said.
Disclosure: CPS Energy, the Lower Colorado River Authority, Rice University and the University of Houston have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in Tribune journalism. Find a full list of them here.
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