Sheep graze among Texas solar panels in the mutually beneficial practice known as agrivoltaics, where both farmers and renewable power providers are able to share land. Credit: iStock/Ziba Photo Media
The adage “everything is bigger in Texas” certainly applies to the state’s energy market. According to a new report from the University of Texas, Austin, the widespread adoption of renewables since 2010 has decreased wholesale electricity costs in the state by as much as $31.5 billion.
Texas’ main electricity market, ERCOT, now ranks number one in the country for both wind generation and natural gas production. That’s no accident. Because Texas has a competitive electricity market, consumers can benefit directly when wholesale power prices fall, but aren’t normally on the hook for the infrastructure costs of new generation investments. Instead, that risk stays with investors, even as consumers can reap the benefits of market innovation.
While the Texas grid has faced challenges with reliability under extreme weather conditions over the past few years, these findings are a potent testament to how markets can benefit consumers and how renewables can work hand in hand with dispatchable sources like natural gas to reduce emissions while keeping the lights on.
Texas’ wind and solar benefits consumers in the form of lower prices and reduced emissions, even as the state’s population grows. The state has seen such dramatic growth in renewable power generation, it now accounts for about 29 percent of the nation’s total electricity from all nonhydroelectric renewable sources That growth in renewables has translated to economic and environmental benefits that are estimated to be as much as $109 billion, and will save consumers between $21 billion and $43 billion through 2025.
But the state is increasingly concerned that supporting gas generation capacity may not have kept pace. As a result, the state is now investing more to improve the economics of gas generation and preserve reliability, even as renewables continue to grow.
Residents saw these savings during last summer’s heatwave where prices stayed mostly below $50, when prices would have spiked in years prior. Renewables as a share of total power reached 35-40% during a late June heatwave, supplying the bulk of power demand for the increased cooling needs. According to study author, Josh Rhodes, “[t]he same sun that heats up our buildings and drives our need for AC is the same sun that makes electricity with solar panels. It lines up pretty well.”
The state’s natural gas fleet is growing older, and until the state can fully implement its Performance Credit Mechanism designed to incentivize new generation, the current fleet remains the state’s essential go-to resource for dispatchable power when renewables are unable to produce.
A robust competitive market can help preserve a balance between growing renewables and reliable gas generation to ensure that consumers are the ones who ultimately benefit.
Winter Storm Uri challenged Texas’ grid in early 2021 in unprecedented ways and with tragic consequences. But improvements continue to be made by market participants to mitigate future extreme weather situations and by regulators to improve the structure of markets to ensure reliability even under the most extreme circumstances.
The state has already had to adapt to rapid growth in demand. Consumption in Texas has grown 20 percent over the past decade and is expected to continue to grow in the next decade. But despite recent challenges, the University of Texas report projects that by the end of 2025, about 2,100 megawatts (MW) of natural gas, 4,700 MW of wind, and 31,500 MW of solar will come online within ERCOT.
Texas is not alone in the struggle to power through peak demand – the North American Reliability Corporation (NERC) has estimated that two-thirds of America could face energy shortages as retirements of dispatchable sources of energy continues without sufficient resources to replace the energy and ancillary services they provide. Under normal operating conditions, Texas has enough power reserves to meet demand, but the state is the fourth fastest-growing state in the country, experiencing record population and GDP growth even as extreme weather conditions continue to challenge electric grids—making it more important than ever that the state has a sufficiently large portfolio of generating resources and a stable competitive market structure.
To address the reliability challenges of more frequent weather events and increased demand, ERCOT managers are taking proactive steps to ensure a reduction in outages. As we enter another winter, ERCOT President and CEO Pablo Vegas noted how “[t]he winter preparedness efforts made by market participants, reinforced by ERCOT weatherization inspections, continue to strengthen the reliability and resiliency of the ERCOT grid.” The inspections are part of ERCOT’s comprehensive suite of programs and tools to ensure reliability over the winter months when renewable energy is less plentiful. The programs include a firm fuel service within the ERCOT market structure to ensure gas generators are able to procure adequate fuel supplies to run during the winter, when reliance on natural gas increases.
The rising demand in Texas speaks to a nationwide reality: electrification and population movements are driving higher demand in unprecedented ways and the grid must keep pace. An energy expansion that includes room for all resources—renewable and conventional—is essential to providing reliable and cost-effective power to all Americans.
Markets like ERCOT can be the most efficient drivers of that shift by incentivizing investments, fostering innovation, and adapting to changing circumstances to benefit consumers and businesses.