EnergyInflux of Renewable Generation Poses Hard Questions for Texas’ Power Grid and Energy Industry

Texas' power grid is set to add lots of new renewable generation while losing large amounts of thermal generators.
March 21, 2022
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Wind and solar generators in Texas can break even selling electricity at negative prices thanks largely to federal subsidies and local tax breaks, which has spurred a bum-rush of wind turbines and solar farms into the state.

“Everyone has struggled to manage the glut of renewables that has appeared over the last 10 years,” Public Utility Commission (PUC) Chair Peter Lake said at a Texas Public Policy Foundation (TPPF) event. “With the introduction of renewables and their intermittency and variability they’ve brought to the ERCOT grid, we have to adapt to that — it changed the equation, changed the landscape.”

Lake’s biggest task after the 2021 blackouts — the reason he’s in his current position and not still heading up the Texas Water Development Board — is to inject more reliability into the Electric Reliability Council of Texas (ERCOT) power grid that failed to live up to its name last year.

The problems that caused and exacerbated the grid collapse are numerous and can be pinned on every electricity source — including renewables.

During the week of blackouts, wind and solar generation, which account for one-quarter of the installed grid capacity, nearly disappeared at times. 

The Texan Tumbler

Solar vanished whenever the sun went down, as it does every day, but it also waned somewhat due to the snow and cloudy skies.

Its counterpart, wind farms, failed more substantially as West Texas turbines were iced out of commission and the wind itself disappeared. Throughout the event, wind generated less than a fifth of its installed capacity — and at other points waned even more than that.

Renewable advocates point out that the sources overperformed their projections at various points during the storm, but its critics counter that a generation source that is so frequently expected to vanish is not a reliability boon.

Wind and solar are capable of producing high outputs. On March 13, the pair produced enough electricity to meet over half of the demand during a minor cold snap.

Data from ERCOT

The influx of renewable generation to the ERCOT grid means Lake’s reliability objective will become increasingly more reliant on at least partially unreliable sources of energy.

The Reliability Problem

Renewable energy is fundamentally reliant on weather. The benefit of that is there are no fuel costs — no need to purchase coal or natural gas, nor the need to dispose of radioactive waste.

Renewables do produce waste, just not a byproduct of a chemical reaction. Once damaged or otherwise deteriorated, turbine blades are disposed of in landfills — the largest of which is in Casper, Wyoming. They can last up to 20 years, but a study by the Electric Power Research Institute estimates turbine blade waste will reach 4 million tons by 2050.

That, however, is a backend problem. Waste is something all energy sources must contend with and is less of a consequence for the power grid than its electricity’s nature of generation.

The drawback is the reliance on weather conditions to enable the generation, and it costs money to insure against that variability, whether potential or realized.

“If the power grid is not reliable, it’s not affordable. Reliability and affordability go hand in hand,” said Robert Bryce, an Austin-based author who focuses on energy issues, during that same TPPF panel.

Texas uses a fleet of peaker plants, generators mothballed for most of the year whose purpose is to produce during points of high demand, that operate on the ancillary services market. The price for this generation is substantially higher than the wholesale market because of its break-in-case-of-emergency premium.

These are most often deployed in the summers, kept available during the sweltering heat in “spin” cycles until they’re called upon.

Usually, solar produces well during the peak summer hours that generally occur in the late afternoon and early evening when Texans return home.

When Texas neared a new peak demand record on August 24, wind produced at most 39 percent of its installed 33,000 MW between noon and 8 pm. The next day when demand again spiked, wind produced between 11 percent and 30 percent of its installed capacity during the same time frame.

Solar on the other hand produced at far higher rates during those two hot August days — producing 80 percent of its 8,137 MW installed capacity on August 24 which then dropped to 1.4 percent as the sun set. The next day’s hourly solar output resembled the previous one.

Wind tends to blow most overnight when the grid’s load wanes. During those times, it can and does produce a sizable portion of the grid’s load.

Located in West Texas, much of the wind and solar generation hubs are far from the population centers. Renewable proponents say that this wouldn’t be an issue if the state had the transmission infrastructure to drive it to the population masses.

With the current technology, electricity is a use it or lose it commodity on the macro scale. Battery technology, while improving, isn’t anywhere near the capability of storing enough electricity to be employed on a statewide level. Wind and solar both require vast amounts of land on which to build the generation farms — far more than is required for their thermal generation counterparts.

The scarcity prices eventually passed down to consumers are at least partially due to over one-third of the grid’s total installed generation capacity being a variable commodity.

“Market Distortion”

Texas’ electricity market is categorized as “energy only,” meaning that generators are only paid for the power they provide rather than having supply and price negotiated upfront like in a capacity market.

The state’s shift to a more open market was done before the turn of the century with an eye toward lowering average electricity costs — service negotiated upfront comes at a premium, regardless of the commodity provided.

According to the Energy Information Administration, as of 2020 Texas’ average retail electricity price sits at 8.36 cents per kilowatt-hour (kWh) which is in the lowest tier of state averages. That is less than half California’s average of 18 cents per kWh.

At the time of the deregulation, renewable energy production was a small fraction of its current stature, and the state’s power grid was dominated by coal and natural gas generation — the latter of which was expensive at the time as the fracking boom hadn’t yet exploded.

In 1999, the PUC adopted the “Renewable Generation Requirement” — a mandate that Texas’ energy portfolio reach 5,880 megawatts (MW) of renewable production by 2015. Six years later that was increased to 10,000 MW by 2025. As of 2021, Texas had roughly 41,000 MW of combined wind and solar installed capacity — quadruple what’s mandated by the statute with more capacity in the queue.

The State of Texas provides other benefits to renewable producers, such as the Chapter 313 tax abatement program — a deal between school districts and companies for a decade-long reduction in the taxable value of their property for building an operation in the district.

Oil and gas companies may seek Chapter 313 deals too, but a perusal of the comptroller’s database of all applications shows the vast majority of applicants are renewable energy companies.

By far the largest financial boons to wind and solar producers are tax credits from the federal government. Solar generators may take advantage of the Investment Tax Credit (ITC), a 30 percent tax credit tied to building the facility. A 26 percent ITC is also available for residential generators, or those who install solar panels on their home’s roof.

Wind generators, meanwhile, benefit from the Production Tax Credit (PTC) which allotts them as much as 2.5 cents per kWh of electricity produced — a running subsidy that is not tied to a one-time expenditure.

Extension of both the PTC and ITC was in the now-deceased “Build Back Better Plan,” along with extension of the PTC to solar generators, as part of a $325 billion renewable energy package. The PTC expired on January 1, 2022.

Whether it’s renewed by Congress or not, the PTC, especially, has affected Texas’ power industry. It’s spurred an influx of wind generation, more than doubling capacity during the last decade. Over that same time frame, renewable generators across the U.S. received $71.2 billion in subsidies — substantially more than subsidies received by thermal generation sources combined.

Critics say these subsidies, the PTC chief among them, allow wind generators in Texas to sell electricity at negative prices and still break even. The price distortion, they state, is accentuated because of Texas’ market design.

In a competitive market, if one actor’s prices undercut the rest, new investment by the others will be discouraged. That’s born out in Texas where zero thermal generation plants are in development.

Rep. Jared Patterson (R-Frisco) proposed legislation in 2021 that would have specifically targeted the PTC requiring the state to “adopt rules, operating procedures, and protocols to eliminate or compensate for any of the price distortion.” 

It ultimately did not pass through the legislature but in July, Governor Greg Abbott directed the PUC to alter its power grid policies. Among those directives was footing renewable generators with the costs of making up for any generation shortfalls during peak demand.

Jeff Clark, president of the American Power Alliance (APA) that “promotes the development of renewable energy” and touts natural gas’ displacement of coal power both as methods to reduce emissions, rejects the assertion that the subsidies have created an uneven playing field.

“The first step would be to have a full accounting of the subsidies that support each energy resource,” Clark told The Texan in February.

“While it’s easy to point to direct financial incentives, many other subsidies are hidden in the tax code, or are incorporated into statute. These include depletion allowances, liability caps, cleanup costs, transportation subsidies, and many more. At the end of the day, the playing field is much more level than advertised and I’d suggest that it’s in every energy producer’s interest not to throw rocks from their glass house.”

As part of its market reforms, the PUC is mulling a Load-Side Reliability Mechanism that “[offers] economic rewards and provide[s] robust penalties or alternative compliance payments based on a resource’s ability to meet established standards.”

This kind of financial reward system aims to persuade the development of more thermal, dispatchable generation — an attempt at evening the subsidy playing field rather than eliminating them.

It would also, theoretically, provide an incentive for renewable generators to keep onsite backup generation, either in stored natural gas or coal, to meet their commitments should the wind not blow or sun not shine.

But the current blueprint sticks cost on the load side through pressure for backup generation investments rather than at the front end through something like a firming requirement — a mandate that generators supply a certain amount of power.

Some believe the firming requirement will accomplish more to balance out the “distorted market” than the PUC’s current proposal. The South Texas Electric Cooperative submitted a proposal that would spread reliability costs across “a much broader class of market participants” rather than one segment of generators.

This fight over market incentives is full of technocratic jargon which can be difficult to make heads or tails of — the language of economists and theorists far removed from the taxpayer. But it has very real consequences for those who flip their light switch and expect the lights to turn on.

There are also critics of the entire system generally — those who prefer a switch to a capacity market or connection with adjacent power grids that would usher in more federal regulatory oversight.

Renewable development is bringing more total capacity, along with very real and substantial financial and material costs.

As it stands, that influx since the turn of the century has thrown a hard-spinning curveball at the system designed to key in on fastballs.

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Brad Johnson

Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.