Texas-based Vistra Corp. announced sweeping plans yesterday to expand its solar and storage portfolio, sideline Midwestern coal plants, and strengthen its resolve to reach net-zero carbon emissions.
The power producer and retailer intends to retire more than 6,800 megawatts of coal-fueled generation by the end of 2027 in Illinois and Ohio. Its newly minted Vistra Zero generation brand claims about 4,000 MW of zero-carbon projects and assets, including an existing Texas nuclear plant. But the company’s generation remains tied overwhelmingly to natural gas and coal.
"If we want to be a long-term sustaining company, we do have to invest in new technologies and transform our company," Vistra CEO Curt Morgan said during a virtual investor presentation.
Vistra is a competitive player in power markets across the country, meaning it doesn’t receive the regulated returns enjoyed by many traditional utilities. But the company is working to convince investors that its integrated model with generation and retail is positioned to succeed in a changing power sector. By 2030, Vistra said, more than 45% of a key adjusted earnings metric could be tied to renewables, storage and retail.
The company aims to reduce CO2 equivalent emissions 60% by 2030 from a 2010 baseline, which is more aggressive than in the past. And its newly stated objective is to reach net-zero carbon emissions by 2050, assuming technology and market setups make that possible. The company spoke previously about aspiring to hit net zero.
Vistra emerged from remnants of the former Energy Future Holdings Corp., which filed for Chapter 11 bankruptcy in 2014 after an ill-timed bet that relied heavily on gas prices and coal-fueled generation in Texas. In 2018, Vistra expanded its traditional portfolio by acquiring Dynegy Inc., which had a significant presence in the Midwest.
Vistra’s latest strategy includes investing more than $1 billion in solar and storage projects in Texas and California over 2021 and 2022.
Yesterday, Morgan said new investments can occur while Vistra returns "meaningful" value annually to shareholders. The company detailed enhanced share repurchase and dividend plans, as well as updated earnings guidance.
"The decision that management faced was invest more in clean energy or return more capital to shareholders," said Travis Miller, an equity strategist for energy and utilities with Morningstar Inc. "And, in fact, they split the difference and did both."
Vistra shares climbed 3.1% in regular trading yesterday to close at $18.53. That’s still well under the 52-week high of $27.96.
Miller said he thinks investors will benefit from potential growth in renewable energy and storage, but he cautioned that Vistra will need to commit more to clean energy investments to demonstrate a transformation.
"I think there’s a lot more to come before Vistra gets full credit from the market," he said.
Vistra set out a general timeline for winding down its coal-fueled generation in the Midwest, which environmentalists are eagerly awaiting.
In Illinois, Vistra said it plans to retire the Edwards plant by the end of 2022, which was previously announced, and the Baldwin and Joppa plants by the end of 2025 or sooner. By the end of 2027 or earlier, the Kincaid and Newton plants in Illinois also are slated to retire, as are the Miami Fort and Zimmer plants in Ohio.
The facilities "remain economically challenged," Vistra said in a statement, particularly those in the "irreparably dysfunctional" market managed by the Midcontinent Independent System Operator.
The retirement announcements also were prompted by upcoming EPA filing deadlines that "require either significant capital expenditures for compliance or retirement declarations," Vistra said.
When asked for further detail, Vistra pointed to a number of issues, including what it called a systematic failure of the MISO capacity market to provide Illinois power plants with adequate revenues. The company argued that subsidies for nuclear and renewables make coal less competitive. And Vistra said the overbuilding of assets in regions managed by MISO and PJM Interconnection LLC put downward pressure on prices, as do low gas prices.
Yesterday, PJM indicated it had not been notified of new Vistra retirements. MISO declined to comment.
Vistra said the company and its subsidiaries have closed — or announced the closure of — 19 coal plants that total over 16,000 MW in Texas, Pennsylvania, Illinois, Ohio and Massachusetts since a leadership change in 2016. A slide showed coal at roughly 29% of capacity for 2020, while gas comprised 64%. An illustrative look at 2030 showed coal around 10% and gas at 65% of capacity.
Since 2010, the company said over 19,000 MW of retirements or announcements have been made on coal- and gas-fueled generation by it or subsidiaries. But Morgan, the CEO, said yesterday that natural gas is expected to "remain a critical fuel to support the reliability of the electric grid," though it may change from baseload to a backstop for intermittent renewables.
Morgan also indicated that some coal-fueled generation remains successful, adding that Oak Grove in Texas uses low-cost lignite. "It may be one of the last coal plants standing in the United States," he said.
‘Another data point’
The Sierra Club said Vistra is the largest carbon emitter in the U.S. power sector, another reason yesterday’s news was significant.
"It’s another data point around an industry transition that’s now undeniable," said Holly Bender, a regional director for the Sierra Club’s Beyond Coal campaign.
Bender said it will be critical to have "policies in place to handle the orderly community and economic transition that comes with closing these coal plants." She said state legislatures in Illinois and Ohio can have conversations around that.
Vistra will need to see a transition timeline for natural-gas-fueled generation, Bender said, in addition to assets tied to coal. She noted that Vistra retains a large coal plant footprint in Texas. But she said it’s exciting to see the company acknowledge the role of solar and storage in the state.
Also yesterday, Vistra said it’s breaking ground on six solar projects and one battery storage development in Texas. The capital investment was pegged at about $850 million. Vistra already has some solar and storage capacity, and it’s developing the Moss Landing storage project in California.
In addition to the roughly 4,000 MW of zero-carbon projects and facilities, Vistra said it’s evaluating other solar and battery options.
That includes "more than 1,000 MW in Texas, more than 1,000 MW in California, and approximately 450 MW in Illinois." Plans in Illinois are tied to potential state policy changes. And Vistra said it’s examining potential developments at existing power plant sites as well.
Yet it’s unclear how policies at the state or federal level may affect those plans. In Illinois, for example, Morgan said something might be passed by lawmakers next year if not in 2020.
Morgan said the path to net-zero carbon emissions by 2050 is not as certain as the company’s 2030 target, but he said technological innovation and supportive public policy will continue to advance.
Vistra is working to support advances, the CEO said, such as investing in a fund that looks at carbon-reducing technologies. Morgan also mentioned the potential for a market-based, economywide carbon fee and dividend plan.
The demand for electricity is expected to rise as the country electrifies, Morgan said, and he pointed toward a continuing need for reliability, affordability and sustainability with lower emissions.
"We believe Vistra is well-positioned to not only display resiliency during this important transition, but to lead and grow," he said.