As heatwaves strain the power grid, Texas must fix subsidy problems

Texas is having a hot summer, and with continued economic growth, power demand in the Electric Reliability Council of Texas (ERCOT) region has already set records. Nevertheless, the hottest days of summer are likely to come.

In the wake of widespread February 2021 power outages, many Texans are wondering how long the grid will be able to handle the state’s growing power needs — concerns compounded by Beto O’Rourke’s gubernatorial campaign and supporting media. O’Rourke is unlikely to win in red Texas in a year of red tsunamis, but a summer blackout blamed on climate change and Republicans would help close the polling gap.

The ERCOT grid may be fine for the remainder of this summer as there have been no significant shutdowns of dispatchable gas and coal production in the past two years, which the grid relies on to meet peak demand as it has in the previous ones was the case for five years. However, the long-term picture shows that the available capacity is falling precipitously and is being completely replaced by wind and solar power, which is not held to any reliability standard. The risk of outages will continue to increase until the Public Utility Commission of Texas (PUC) requires wind and solar generators to pay for the reliability costs they impose on the grid.

The heatwaves of the last two months show exactly why the Texas power grid is becoming less and less reliable. The first factor that comes into play is growing demand. The previous demand record of 74,820 megawatts set in August 2019 has been broken repeatedly this summer, with demand reaching 78,419 megawatts on July 12.

The second factor is our increasing reliance on wind energy, which does not match demand. Wind power during the hottest hours of the afternoon this summer was often below 6,000 megawatts, less than 20 percent of installed capacity and much less than the 9,363 megawatts that ERCOT expects from peak summer wind.

Much of the mainstream media and “expert” commentators focus on it Gas and coal generator failures. While these summer outages are more common than ERCOT expected, our operational fleet was still operating well over 90 percent of its rated summer capacity with far less variability than wind and solar power. Unlike the wind, which may be producing just 2 percent of its installed capacity, as it did during its July 13 low, but could easily produce more than 50 percent during the next heat wave, Texas can rest assured that gas and Coal will be above 90% during the hottest days.

What is most important to the long-term health of the ERCOT market are electricity prices and the problem with the high variance of our wind and solar output is that this leads to greater price variance. Wholesale electricity prices in ERCOT often fluctuate between more than $1000/MWh and negative within a few days, depending on whether or not wind power exceeds demand.

With such massive and unpredictable price swings, it’s no wonder Texas, which sits on an ocean of natural gas, isn’t building gas-fired power plants to stabilize its grid. Power plant developers cannot predict their earnings year-to-year, let alone 20 years into the future, and ensure their investment pays off.

In contrast, wind and solar generators are built because they benefit from massive government subsidies and often have guaranteed off-take contracts with large commercial and industrial users or municipal utilities, all of which want to claim they are 100 percent renewable. Of course, these claims ignore the fact that Texans all pay for backup power to support the grid when wind and solar aren’t available — meaning they’re not truly 100 percent renewable.

And therein lies the problem that the Texas PUC must solve. Who is paying for the extra backup power to support the explosive growth of wind and solar on the Texas grid? Nobody pays for it at the moment, and the reliability of the network decreases as a result.

The PUC embarks on a redesign of the ERCOT market to ensure the network has sufficient resources to meet the growing demand. However, the current proposals are fatally flawed because they fail to discipline the growth of wind and solar power, instead shifting the cost of ensuring reliability entirely to tariff payers.

Unfortunately, any plan that places the cost of reliability solely on Texas ratepayers will end up chasing wind and solar subsidies with subsidies for reliable backup power, as California and Germany are doing. Electricity rates in Texas are already skyrocketing, and in a few years, Texas electric bills will look like California’s instead of the cheap electricity the state is used to.

The ERCOT market has invested over $60 billion in private capital in new wind and solar power assets, in addition to billions in federal subsidies. It’s not hard to imagine that if $30 billion of that $60 billion were invested in more reliable power generation and weather resilience measures, our electrical system would be more affordable and reliable.

The misconception that the ERCOT market simply needs more investment in power generation was echoed this week by ERCOT interim CEO Brad Jones. “I want so much [wind and solar] in this market as we can get,” he said. “At the same time, we need to make sure we have enough generation ready for use when the wind isn’t blowing and the sun isn’t shining.” What Jones doesn’t realize is that the rise in wind and solar power is making it more expensive to keep the lights on. Texas doesn’t need more investment. Smarter investments are needed.

The most cost-effective way to solve this investment problem is to require wind and solar generators to purchase backup power or energy storage such as giant battery farms and match their variability more closely to that of gas, coal, and nuclear generators. This requirement will impose appropriate discipline on wind and solar power growth by ensuring that new wind and solar power generation does not increase power supply variability.

The Texas Public Policy Foundation called for this reform well before February 2021, and the Texas Senate and Gov. Greg Abbott called for it almost a year ago, but the PUC isn’t even investigating it right now. It’s time for the PUC to stop avoiding the problem and start tackling it properly. The future of the Texan grid and tens of millions of Texans depends on it.

Brent Bennett is the policy director of Life:Powered, a Texas Public Policy Foundation initiative to increase America’s Energy IQ. He earned his Ph.D. at the University of Texas at Austin researches grid energy storage systems and is a widely cited expert on Texas energy policy and the Texas power grid.

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