By David Wagman, Managing Editor
TXU last month cashed in big time as Kohlberg Kravis Roberts and Texas Pacific Group said they plan to acquire the company in a deal valued at around $45 billion. As part of the deal the utility agreed to scrap eight of 11 proposed coal-fired power plants, boost its investment in renewable energy sources, endorse a cap-and-trade scheme for dealing with carbon emissions, pledge to reduce key emissions by 20 percent from 2005 levels and make peace with environmental groups that have been pounding the company for months. There’s a price for everything, so I guess we now know how much it would take for TXU at least to reverse course and adopt a brighter shade of green.
The reversal is remarkable. In November, TXU Generation vice president Brad Jones told a Keynote audience at POWER-GEN International that TXU planned to take a lesson from Teddy Roosevelt and “blaze a trail” of its own, adding 9.1 GW of new coal-fired capacity in Texas. In light of the February acquisition and decision to slash the coal buildout, more than a few people must wonder, Where’s the missing 6.5 GW? Have ERCOT’s demand projections changed: namely the projection that the equivelent of the state of Tennessee will move into Texas in the next 10 years? Or did TXU merely say it needed 9.1 GW to arrive at 2.5 GW. Interesting how 45 billion George Washingtons can change the minds of even the truest-sounding Rough Riders.
But even before the $45 billion hit the table, environmental groups were having some success in Texas, using court challenges to slow TXU’s permit approval process. Associate Editor Steve Blankinship, who is based in Texas, began to hear weeks ago that TXU was starting to back away from its 11 power plant deal.
Confirmation that what Steve heard was correct came in part from McDermott International, which said in a news release on February 26 that its Babcock & Wilcox unit had been given notice some time before the acquisition to “suspend performance” on five of eight Texas projects related to the design and supply of supercritical coal-fired boilers and selective catalytic reduction systems.
Enviromental groups see the TXU acquisition and course reversal as a big win. It isn’t their first. A year ago, Sempra dropped plans to build two coal-fired power plant, one in Nevada and one in Idaho. Environmental opposition hit those multi-billion plans and drove the company out of the new construction business altogether.
But environmentalists also have opposed wind power projects, perhaps most notably in Massachusetts where opposition has stalled a proposed project off of Cape Cod.
In Texas the extent to which environmentalists support wind will be tested by plans announced in February for $1.8 billion in new transmission that would bring around 4,800 MW of wind capacity from western parts of the state to load centers in the eastern part. Such transmission projects have previously been targets for environmentalists. Whether they now will begin to embrace transmission for renewable energy remains to be seen.
At What Price?
TXU’s reversal may well mean that electricity will be more expensive in Texas. Natural gas and renewable energy are both more expensive than coal-fired generation. Nuclear might be a good alternative, but hefty risks exist in building a nuke in a deregulated market where cost recovery is uncertain.
Another consideration is how the country will meet forecast growth in electricity demand. The North American Electric Reliability Council’s 2006 long-term reliability assessment projects U.S. demand over the next 10 years will rise by 141,000 MW. The assessment points to 57,000 MW of projected committed resources (presumably counting 11 TXU plants, not three). Just where the remainder is going to come from remains a fair question to ask. Can the gap be closed through conservation and renewable energy sources alone?
Coal must remain an important source of electric generation. The fuel will help this country achieve energy independence, which public policy makers say is critical to national security. What’s more, electricity generated by coal is less expensive, supporting the public policy goal behind providing low-cost power: to benefit businesses competing in the global marketplace and to help households facing limited economic resources.
The electric generation industry already knows that current coal technology is better able to reduce emissions and protect the environment. For example, TransAlta Corp. confirmed plans at the end of February to build a 450 MW power project in Alberta, Canada. The Keephills 3 project will use supercritical boiler technology enabling it to emit 24 percent less CO2 in producing the same amount of power as four units that are being retired. SO2, NOX and mercury emissions will each be cut by 60 to 80 percent in comparison with the four retiring units.
But the big lesson from TXU and Sempra may be the need to more actively involve the environmental community in development plans. Writing in Power Engineering last September, Dan Bakal, director of electric power programs at Ceres (a coalition of investors and environmental groups whose members manage more than $3 trillion in assets) noted what he said are two conflicing trends: the “reality of climate change” and the “increasingly urgent calls to transition to a ‘low-carbon’ economy.” His organization is bringing pressure on the financial community to use economic leverage to achieve environmental goals. As part of its regime change, TXU now plans to join similar organizations to press for more environmental change.
Economic leverage clearly was at work in Texas. The promise of $45 billion changed more than few minds at TXU, reversing by 180 degrees aggressive corporate views on the environment, electric power generation and its role in the community.