Could Texas lawmakers end the state’s renewable boom?

Source: By Miranda Willson, Jason Plautz, E&E News • Posted: Monday, April 24, 2023

Wind turbines are viewed at a wind farm.

A truck drives passing a wind farm in Colorado City, Texas. Getty Images

Texas is a sweet spot for renewable energy deployment, leading the nation in wind energy and second only to California in solar power.

But two years after the electric grid nearly collapsed during a severe winter storm, conservative lawmakers in Texas have proposed a slew of policies that could upend the Lone Star State’s status as a clean energy powerhouse and push renewable energy projects elsewhere.

Texas state senators backing the policy changes want to double down on natural gas, a move they say would make the state’s isolated power grid more reliable. Critics argue the bills they’ve proposed would do little to keep the lights on — while chilling solar and wind projects despite historic federal support for those technologies.

“If I’m a wind or solar developer, there’s been so much anti-renewable talk or actions contemplated in a wide variety of legislation, why would I come to Texas?” said Beth Garza, a senior fellow at the R Street Institute who previously served as independent market monitor for the Electric Reliability Council of Texas (ERCOT), the state’s main grid operator.

Several proposed bills have cleared the Senate, but they could face scrutiny in the Statehouse where lawmakers seem less bullish on upturning the energy market. The bills include a controversial plan to build a state-backed fleet of natural gas-fueled power plants. Others would target the laissez-faire regulatory environment that has allowed renewable energy to flourish, including by requiring renewable energy projects to pay for backup power or by adding new grid connection fees.

If Texas grid legislation becomes law, it could cause a shake-up where renewable energy gets built in the south-central United States, Garza said, noting the solar and wind potential of neighboring Oklahoma and New Mexico. Some of the proposed changes could also bring new grid connection and permitting slogs seen in other states that Texas has historically avoided.

Clean energy developers say the proposals are already influencing investment decisions in the nation’s second-largest state by population.

“Our member companies have funders who are starting to ask what the hell is happening in Texas,” said Judd Messer, Texas vice president for the Advanced Power Alliance, which represents clean energy companies. “We’ve got billions of investment dollars that we’re hoping to bring to Texas, and that’s at risk if the government is going to be punitive.”

The bills exemplify recent efforts in Republican-controlled states to boost fossil fuels at the expense of renewables amid rapid changes to the energy resource mix. State lawmakers in coal-rich West Virginia, for example, have already enacted laws this year that aim to prevent coal-fired power plants from closing.

Still, Texas’ energy policy is particularly significant given its size. Texas is poised to add 7.7 gigawatts of solar power and 2 GW of onshore wind in 2023, the largest of any state for both power sources, according to the U.S. Energy Information Administration. All told, the state accounted for more than 21 percent of the nation’s utility-scale renewable energy in 2022, excluding hydropower.

That’s in part because of the state’s vast geography, wide coastline and abundant sunshine. But project developers and energy analysts say the state’s open energy market has been crucial. Connecting new projects is cheap and relatively easy compared to other grid operators. And a competitive electricity market has allowed renewables to overtake some other forms of power as construction costs have plummeted.

“That light regulatory environment has been a positive signal for industry investment to come to Texas,” said Micalah Spenrath, policy principal at Texas Advanced Energy Business Alliance, a trade association for wind and solar companies, electric vehicle makers, and other clean energy businesses.

Dispatchable power

The legislative push led by Lt. Gov. Dan Patrick (R) is designed to bolster the grid to avoid the widespread blackouts that swept the state in 2021 during Winter Storm Uri, which killed more than 240 people in Texas.

State regulators and lawmakers have said that the influx of renewables coupled with a growing load and retiring fossil fuel plants could leave the grid at risk during periods of extreme weather. They argue that more “dispatchable” power sources that don’t depend on the wind or the sun — like quick-start natural gas and nuclear plants — are needed to guarantee the lights will stay on.

The state Public Utility Commission (PUC) has endorsed an idea called the performance credit mechanism, or PCM, which would require power providers to purchase credits from generators guaranteeing that both parties will have sufficient power to meet the periods of highest demand (Energywire, Jan. 23).

Renewable energy was not the root cause of the 2021 blackouts. A report from federal agencies found that all forms of power failed, but the failure of natural gas plants to function in extreme cold was a driving factor behind the power losses. There also were natural gas delivery issues during the winter storm last December, although the ERCOT system did not have any blackouts (Energywire, Jan. 11).

But some lawmakers and grid officials have said that the flexible regulatory environment that boosted renewables leaves the grid at risk in times when demand rises but the sun is not shining or the wind is not blowing.

One of the Senate bills — S.B. 2012 — would authorize the PCM, but place guardrails on it to limit increases in electricity rates and allow the Legislature to oversee implementation of the plan. It would also cap the total cost of the program at $500 million.

Other bills would go beyond the PCM idea.

Among the most controversial proposals is S.B. 6, which would use surplus taxpayer money to pay electric utilities to build up to 10,000 megawatts of natural gas power plants. For perspective, energy consumption in Texas last winter hit a new peak of 74,427 MW.

The new plants would have “on-site fuel storage,” which could include liquefied natural gas, and would be turned on under certain circumstances where the power grid is under stress, according to the bill text. In addition, the bill would seek to establish a revolving loan fund to “maintain and modernize” dispatchable power plants, which include natural gas, coal and nuclear facilities. Patrick said the new plants would guarantee a reliable source of power in extreme weather.

But the bill is facing pushback over its costs to consumers, its exclusion of many energy resources and restrictions regarding which entities would be eligible to receive state money to build the power plants. Some critics also said that it could have unintended consequences that would minimize any intended reliability benefits.

The idea was floated in 2021 by energy giant Berkshire Hathaway Energy, which would have been in position to build the plants. But it ultimately did not move through the Legislature. The company has testified in support of S.B. 6 this year.

The revival has faced significant questions, especially for its cost.

Patrick and state Sen. Charles Schwertner (R), lead sponsor of the bill, said it would cost $10.8 billion, which could be covered by the state’s budget surplus. However, a presentation by the Lower Colorado River Authority — a public utility — estimated it could cost $18 billion, according to Bloombergand other outlets.

If enacted, the bill could effectively stifle the development of new energy projects in Texas because private developers will not want to compete against new state-subsidized facilities, said Chris Moser, head of competitive markets and policy at NRG Energy Inc. One of the largest energy generation companies in Texas, NRG would not be eligible to build the plants contemplated under the bill, Moser said.

He also questioned whether it would benefit the Texas power grid.

“Texas ran out of gas in Winter Storm Uri. The solution in S.B. 6 is, ‘Let’s build some more gas plants,’” Moser said. “That feels like a pretty big assumption for me to be comfortable with.”

Others said it also comes in opposition to the goals of the PUC’s performance credit mechanism. Calpine Corp., a Houston-based energy company, announced in April that it would relaunch its Texas power plant development program, including two new natural gas plants, in light of the PUC’s plans.

In an email, Calpine spokesperson Brett Kerr said that while the PCM plan would support a “competitive market construct,” S.B. 6 would not.

“By creating an out of market resource class that benefits from a guaranteed rate of return as proposed in S.B. 6, the competitive nature of ERCOT would be significantly damaged, perhaps irreversibly,” Kerr said. “These types of discriminatory policies have been tried elsewhere and have not been successful.”

Another proposal, S.B. 7, could make it more expensive to build wind, solar and battery storage projects in particular, critics said. It would create a new grid service in Texas paid for by generators, with the largest costs falling to “non-dispatchable” facilities, such as solar and wind projects, said Spenrath of the Texas Advanced Energy Business Alliance.

The goal of that bill is to require all kinds of power generation facilities to be more reliable, supporters of the legislation have said. It’s also intended to give fossil fuel power plants a boost, according to the Texas Public Policy Foundation, a think tank that advocates for conservative policies.

“Holistic cost allocation of reliability services, as outlined in Senate Bill 7, will improve price signals for reliability and ensure more dispatchable generation is maintained and built,” Brent Bennett, policy director for the foundation’s Life:Powered initiative, said in a news release.

Several other bills more explicitly target the state’s expansive renewable energy industry.

S.B. 2015 would establish a statewide policy that 50 percent of the “megawatts of generating capacity” installed in the ERCOT power market starting next year “be sourced from dispatchable generation.” Currently, the vast majority of proposed new energy projects seeking to connect to ERCOT’s system are wind, solar and battery storage plants, although not all of those projects may be built.

In addition, S.B. 2015 would require electric generation companies and certain utilities that do not own the “rights to” that type of generation to purchase credits. Those credits would fund the development of new dispatchable energy facilities.

The Texas grid debate has scrambled some traditional alliances.

Americans for Tax Reform, the conservative group backed by Grover Norquist, has come out against the bill package, saying it would “have state government unnecessarily meddle in Texas energy markets in a way that is very uncharacteristic of the Lone Star State’s conservative reputation.”

Other bills would affect the grid connection and permitting processes in Texas, making them significantly less favorable for renewable energy developers.

While new energy projects in most of the country are bogged down by lengthy interconnection delays, ERCOT has one of the fastest processes, according to data from the Department of Energy.

Energy companies in Texas are not required to pay for transmission upgrades associated with connecting their projects to the ERCOT system, said Garza of the R Street Institute. Instead, those transmission costs are paid for by all electricity consumers, she said. That contrasts with the systems in place in other parts of the U.S., whereby developers of new energy projects must pay for grid upgrades themselves.

But S.B. 1287 would create a new process in Texas for allocating certain grid connection costs to companies seeking to connect in ERCOT. According to Garza, backers of the bill are concerned that transmission costs have been rising in Texas and want less of those costs to fall to consumers.

Even so, transmission is typically “still a minority of the portion of customers’ bills,” she said. “At the same time, access to lower-cost energy has driven down the generation portion of people’s bills tremendously.”

Next steps

The sum result of the Senate grid proposals would be a “negative regulatory climate,” said Chris Reeder, a partner with Husch Blackwell’s Energy and Natural Resources practice.

“If you’re a project developer, you’d look at ERCOT as having more regulatory risks than you have in the past,” Reeder said. “The overall climate isn’t even necessarily incentivizing dispatchable power, it’s making everything come at the expense of renewable generation.”

Advanced Power Alliance’s Messer — a former aide for multiple lawmakers in the Texas House — said his group is working with legislators there to encourage a middle ground that would improve reliability in Texas without directly attacking renewable power.

House members, he said, have been “more open-minded” in their positions and Messer sees the House as the “best chance for maintaining the market structure we have today with some improvements.”

In 2021 — the state’s last full legislative session — House lawmakers pushed back on some of the Senate’s more sweeping energy reforms in a bill package responding to the winter storm. That included removing a plan to require renewable energy companies to purchase reserve power for the grid.

So far, only one of the Senate bills — S.B. 2012, dealing with the PCM — has been heard in a House committee. In testimony on a House substitute for the bill, many large power generating companies said that while they had concerns about the general PCM idea, the guardrails laid out in the legislation could help.

Other bills have been referred to a House committee, but that does not guarantee they will advance. House lawmakers also have their own version of legislation dealing with interconnection costs, although clean energy companies testifying on the bill said it could cost them less than the Senate’s version.

State House Speaker Dade Phelan (R) has not announced plans for what legislation might reach the floor before the end of the session, scheduled for May 29. A spokesperson for Phelan did not return a request for comment, nor did the office of Gov. Greg Abbott (R).

But the energy industry is watching more legislation in Texas’ lower chamber. House lawmakers are considering an updated version of a corporate tax break program that expired last year. The program — known as Chapter 313 — had helped foster renewable energy, especially in small rural counties.

In a news conference in March, Abbott said that he wanted it renewed but supported it “not providing economic incentives for renewables,” and a version introduced earlier this month in the House excluded wind and solar farms.

Permitting has also been relatively simple for renewable energy developers in Texas. Historically, Texas counties have had fewer siting restrictions and overall requirements for new energy facilities as compared to many other states, said Ben Cowan, a partner at the law firm Locke Lord LLP in Houston.

Yet S.B. 624 would create a new permitting and environmental review process specifically for wind and solar power plants. Aimed at protecting wildlife and natural resources from potential impacts associated with solar and wind, the bill is written in such a way that it would apply to existing projects as well, according to Cowan.

“There’s no mention in the bill of impacts of other forms of generation or of oil and gas exploration,” he said. “I’m not aware of any other states that have siting requirements strictly for wind and solar.”