Pat Wood helped create Texas’ electricity market, then he lost power for 36 hours in the freeze

This op-ed is part of a series published by The Dallas Morning News Opinion section to explore ideas and policies for strengthening electric reliability. Find the full series here: Keeping the Lights On.

By 2030, Texas will likely get electricity from renewables 80% of the time.

That’s not a wild goal from environmental activists who want you to set your thermostat at 82 and wash your clothes by hand. That’s a prediction from energy expert Pat Wood, a former electricity regulator who helped write the law that deregulated the Texas electricity market.

And that real possibility is why the current Texas electricity regulators at the Public Utility Commission and the Electric Reliability Council of Texas are deep in discussions about how to redesign the deregulated market to ensure the lights stay on when the wind and sun stop.

Texas has more wind power capacity than any other state and solar capacity is growing rapidly. So far this year, wind and solar generators have produced about 31% of the electricity that Texans in the ERCOT market consume. And ERCOT anticipates investors will add an enormous amount of renewable capacity over the next five years, nearly 23,000 megawatts of generating capacity including more than 19,000 of solar. That would more than triple the renewable capacity on the Texas grid.

“And the energy market price for that will be zero,” Wood said in an interview last week. That is, within 10 years, the market price for electricity will be $0 about 80% of the time, considering the cost of fuel for renewables is nothing, and renewables get government subsidies.

This reflects the runaway success of deregulation, and also, a problem with the market design. The Texas wholesale power market is designed to favor the lowest-cost electricity generation, which happens to be wind and solar. But renewables are as reliable as the weather, so they require back-up power generators. ERCOT relies on natural gas fired plants to step in when the wind and sun stop. But there’s little incentive for investors to build back-up plants, or any kind of fossil fuel plant, because the typical price of electricity is so low, they can’t make a profit.

“The other 20% of the year though, we’re going to have to figure out,” said Wood, who is chief executive of Hunt Energy Network. “We’re going to need the coal plants and the gas plants to be around because there’s going to be events like [the one that] happened in February, when it’s either at night or the wind’s not blowing.”

He added: “And so when 80% of the hours are going to be zero, that doesn’t pay the bills … to staff a facility and to keep the lights on and to procure the fuel and, you know, make sure everything’s maintained well.

“This new adventure that we’re going into, which is renewable grid 1.0, is going to look really different. And so we’re going to have to figure out those rules on our own. And that’s what the Legislature told the [Public Utility] Commission and ERCOT to do. … And they gave some specific things that point the direction, but they don’t say what the answer is because wisely, they said, we’re going to let the experts figure that out,” said Wood, who has experience as chairman of the Texas PUC and of the Federal Energy Regulatory Commission under President George W. Bush.

Wood said it’s hard to believe that the competitive market he and others put into place 20 years ago has yielded so much renewable energy. And as a moderate conservative, he has been cheering the trend. “Every shutdown of an old plant, every time a coal plant got shut down by the market, I was like, ‘Way to go.’ We didn’t have the regulator do it. It was the market doing it,” he said.

But when he was in the dark for 36 hours in Houston in February, he knew something had to change. And fast, because in February, ERCOT came within minutes of a total grid shutdown, which would have taken days or weeks to repair, possibly resulting in even more sickness and deaths from the freeze.

Further, with electricity demand growing, regulators must figure this out quickly or companies won’t invest in Texas.

So what’s the answer? Wood expects the PUC will come up with a new tool to incentivize more dispatchable generation, that is, power plants that can produce power anytime they are needed.

“It’s not going to be a capacity market,” he said, a popular suggestion to add a second market for back-up generation capacity.

And it can’t be a return to the days of regulated utilities. “I certainly wouldn’t recommend that because it was awful. I did both regulated and competitive, and I can tell everybody crying for the regulated world to come back: Y’all don’t know how crappy it was.”

With the success of renewables, he said “I wish we could just be done with the subsidies … but we aren’t quite there yet. I don’t know that the government is going to ever allow subsidies to die.” And that’s not meant to punish renewables, but to create a healthy market where they can flourish.

Wood said he envisions a new ancillary service, that is, a back-up generation service that ERCOT buys to keep the grid stable. There are a number of such services with very specific uses, and a new back-up generation service designed for reliability in the winter could prevent another Valentine’s weekend freeze.

“It’s been 22 years since we did this the first time,” Wood said, referring to the debate in Austin about designing an electricity market. “I told the commissioners, I said, from the old guard, nothing is sacred … The important thing is that you have an open collaborative process that gets all of that out on the table. And when that all gets out on the table, the right answer pretty much is self-evident.”

Wood, who manages Hunt Energy’s new investment in grid-level batteries, said energy storage will be part of the solution to reliability, but probably won’t solve everything.

The key trade-off commissioners will have to wrestle is cost. “It’s one that the industrial customers will be more than happy to remind them about every minute, which is what is the cost of this and how is the cost of any of this being paid for?”

He expressed confidence that the commissioners will find a solution that can be implemented by next summer. When he was called to testify to the PUC earlier this month, he was “blown away” by the “caliber of discussion” the commissioners were leading, even before they got a finger-wagging from lawmakers to work quickly.

“This grid is becoming differently resourced, despite what my governor and some of the legislators may say publicly. We’re going to have intermittent resources, they’re cheaper and they have environmental attributes and customers like them,” Wood said. “You know, if we just took 80% [renewables] and call that a victory, and then cleaned up the other 20%, that’d be a home run to me.”

Elizabeth Souder is commentary and Sunday Opinion editor and a member of the Dallas Morning News editorial board.

The Cynthia and George Mitchell Foundation funded and released "Never Again: How to Prevent Another Major Texas Electricity Failure," a groundbreaking report by former Public Utility Commission of Texas commissioners, including Pat Hill, that offers recommendations to help the state avoid future grid failures and fortify Texas’ energy future.

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