The Falling Coal Market
At both the national and international level, policies are being put in place to promote clean and renewable energy sources for the 21st century. States such as California and New York often take center stage for their enactment of policies designed to reduce carbon emissions and focus their energy economies on modern sources such as solar, wind, and natural gas.
While these policies have been effective in updating energy grids throughout the country, there are many states where the drive towards clean energy and renewables is powered less by policy and more by the free market. Texas is a prime example of this market-centric move toward a modern energy economy. In a state not known for policy decisions designed to emphasize clean energy, there has been a steady march toward the increased use of cheap renewable energy sources, and a notable decline in the use of expensive coal power in recent years. Dallas-based Stream Energy is a key example of this movement (https://www.puc.texas.gov/industry/electric/directories/rep/report_rep.aspx?ID=ELSQL01DB1245339200001).
What Triggered Texas’s Move Toward Clean Energy?
Until 2001, power in Texas was regulated as a public utility. Citizens of the state got their power from a single local provider. In cities, this was a municipal utility, while more rural areas relied on investor-owned utilities or electric co-ops. These utilities and co-ops typically controlled all aspects of the energy delivery process, from the customer service network to the power lines, to the power plant itself.
At the start of the 21st century, that all changed. In 2001, Texas lawmakers passed legislation that deregulated the state’s energy infrastructure. The legislation transitioned Texas to a competitive electric marketplace that prioritized putting the cheapest energy on the grid first.
The deregulation of Texas’s energy market had a profound effect on the companies operating in the energy sector. Public utilities lost their monopoly and newer companies, like Stream Energy, were able to participate in the state’s energy economy.
One example of the changing face of Texas’s energy infrastructure is the rapidly growing direct selling company, Stream Energy. Founded in 2005, Stream’s model is centered around marketing energy directly to clients through a vast network of Independent Associates. With a business plan that would have been impossible before 2001, Stream’s practices have proven so effective that it is now consistently recognized as a top direct selling company nationwide, with more than $8 billion in revenue since its inception.
Why is Clean Energy Thriving?
When we talk about clean energy, we are typically talking about energy derived from one of three sources: solar, wind, and natural gas. In a September 2016 report, the Electric Reliability Council of Texas (ERCOT) Market, the energy market that services about 90% of Texans, noted a sharp decline in recent prices for all three of these energy types. The report noted a 70% decline in the price of natural gas from 2008 to 2015. It also showed a 58% decline in the price of wind energy from 2009 to 2014. Solar energy, typically the most expensive of the three, is now 26% lower than the price of wind energy as of 2009.
Technology has been the driving factor in the drop-in price of alternative energy sources. As these technologies become cheaper to manufacture and maintain, the price of the energy they produce goes down.
Technological advances have also increased the amount of energy these sources are able to produce (capacity), allowing them to keep pace with more established methods of power generation. Wind’s cumulative capacity in ERCOT went from almost nothing in 2000, to 15,764 megawatts in 2015. In percentages, the wind went from supplying less than 1 percent of the state’s energy needs in 2000, to over 20% in the beginning of 2017.
Though it has much to do to catch up with wind power, solar capacity in ERCOT has increased as well. It has gone from 15 megawatts in 2010 to 288 megawatts in 2015, an almost 2000% increase in capacity over that time.
Why is the Coal Market Falling?
As clean energy rises on the strength of lower prices, technological advancement, and increased capacity, coal markets are falling due to their deficiencies in those areas.
As we see the increased capacity of alternative sources, and companies like Stream, who try to meet Texas’s energy needs at reduced prices, the demand for energy from traditional coal-fired generators decreases. With lower demand comes pressure for coal industries to lower their prices in order to remain competitive in the Texas energy market.
The need to lower prices is producing economic and financial strain on coal-fired generators that are already facing rising costs of doing business. This is a key ingredient that caused companies like Stream to rise. With many plants nearing forty years of age, producers of coal-fired energy are dealing with the reality that their generators will become increasingly expensive to run as time passes. These same plants are now also confronted with costly expenditures centered around complying with evolving environmental regulations and a competitive clean energy market.
With producers feeling the pressure of the preceding market concerns, many coal generators are opting to shutter their plants. Recently the state’s largest power generator, Dallas-based Luminant, announced it will close three major coal plant plants early next year.
In another sign of the evolving Texas energy infrastructure, an increasing number of executives are transitioning their businesses from using traditional energy providers to newer players in the energy industry. The aforementioned direct selling company, Stream, recently made headlines with the hiring of its new chief financial officer, David Faranetta. Faranetta, previously a senior executive at both TXUenergy and Luminant, is just one of a number of employees Stream has attracted from more traditional energy companies of late.
What Does it All Mean For Texas’s Energy Economy?
With Texas’s competitive energy marketplace here to stay, the state’s energy economy will continue to favor lower prices through free market competition. As the costs associated with producing alternative energy continue to drop, and the costs of producing coal-fired energy continue to rise, clean energy will see an increase in Texas’s energy market share as time passes. Likewise, companies, like Stream Energy, are using innovative techniques to meet customer demands will continue to see success in an economy leaving its days of heavy regulation behind (LinkedIn).