Texas should boost clean energy innovation, not discourage investors

Renewable energy met almost 40 percent of Texas’ electricity demand in March, and during some early morning hours this month, power was essentially free because the wind was blowing so hard, and demand was so low, according to grid data.

Texas has more installed wind and solar capacity than any other state in the nation, and most countries around the world. Our grid has been a global leader in clean energy for two decades.

This embarrassment of riches comes just weeks after the Texas Blackout left 4 million homes without power and led to more than 200 deaths. Some Texas politicians want to exploit that tragedy to kneecap the renewables industry in a move that would not improve reliability.

To understand how an esoteric change in the Electric Reliability Council of Texas market could stymie new investment in clean energy, it’s important to understand how the grid manages electricity purchases.

ERCOT conducts a day-ahead market where generators compete to supply the cheapest electricity for the following day. The operator contracts for as much power as it expects to need, but ERCOT pays only for the electricity consumers use. Generators add or subtract from the grid as demand rises and falls.

To keep the grid balanced, ERCOT also asks quick-start generators to provide additional power in case of an emergency, or to assist the grid as generators spin up and down or when large customers, such as steel plants, add or drop load. These are called ancillary services, and these costs show up on consumers’ bills.

Ancillary service costs have been relatively consistent for the last decade, even as renewable generation has grown 250 percent. But just as the Texas Blackout triggered extremely high wholesale prices, ancillary service costs were 100 times higher than normal.

Sen. Kelly Hancock, a North Texas Republican, consistently trashes clean energy and does not like to talk about climate change. During the blackout, I criticized him on Twitter for spreading misinformation about renewable energy. He is leveraging the crisis to introduce a measure that would force wind and solar generators to pay ERCOT for any ancillary services they might trigger.

Never mind that untangling which generator or customer is creating the need for ancillary services at any moment is nearly impossible, or that no other companies would have to reimburse ERCOT for ancillary services.

Hancock could not pass his bill, so he got it amended on to Senate Bill 3, the measure I praised last week for making meaningful reforms to the grid. Hancock’s amendment, though, threatens the future of a major Texas industry.

Renewable energy projects last year paid more than $380 million in state and local taxes and provided landowners with nearly $250 million in lease payments, according to industry data. Wind energy employed more than 25,000 Texans in 2019, while solar had more than 9,600 workers.

Energy investors have put $60 billion into Texas renewable energy projects. But billions more will not come if Texas lawmakers single out renewables for punitive fees, Gregory Wetstone, CEO of the American Council on Renewable Energy, said in a letter to state leaders.

“Our companies have invested tens of billions of dollars in the state partly because of our confidence in Texas’ historically friendly business environment,” he wrote. “The amendment found in Senate Bill 3 … retroactively rewrites market rules that were relied upon by investors and imposes onerous new cost burdens. Such changes would undercut previous investment decisions and erode confidence.”

Additional energy investment is exactly what Texas needs, according to a new analysis from the financial data firm S&P Global Ratings. ERCOT’s energy-only market rewards low-cost electricity, not reliable power, and discourages new construction, analyst Aneesh Prabhu wrote.

The wholesale market structure was designed for power plants that use variable-cost fuels. Renewable energy, though, has no fuel, only fixed costs, and the federal government provides tax credits. Because of those credits, renewables can give away electricity. And since wind and solar fixed costs are coming down, the future price curve for ERCOT electricity also slopes down.

Low prices mean low profit margins for investors. Some Republicans want to subsidize fossil fuel power plants, but there are better ways.

Lawmakers could restructure the market to pay fossil fuel plants for backup power, something called a capacity market. Or they could connect ERCOT to the rest of the country, allowing all power plants to export electricity when they have surpluses and import it when ERCOT needs it.

Better yet, they could reward new technologies that store clean energy, such as long-duration batteries, green hydrogen or compressed air. Texas could remain a global clean energy leader, developing the technologies and energy workforce of the future.

The Legislature needs to delete Hancock’s amendment, and the sooner the better for our future.

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© 2012-2021 Cynthia and George Mitchell Foundation.