Natural gas, renewable energy will power the future Texas grid — study

Source: Daniel Cusick, E&E reporter • Posted: Thursday, June 13, 2013

The path to low-carbon electricity generation in Texas will likely require the co-development and integration of both natural gas and renewable energy resources like wind and solar power, a new research report commissioned by the Texas Clean Energy Coalition has found.

The white paper, prepared by the Brattle Group for the Austin-based nonprofit, states that despite perceived competition between natural gas and renewable energy resources in Texas, the reality is the two sectors can aid each other’s growth and can eventually help Texas meet rising energy demand in an era of tighter environmental controls.

“Low-priced natural gas and clean renewable resources are complementary, not competing, resources to displace other fuels over the long term. Coordinated development of both will lead to a win-win for Texas and the environment,” Kip Averitt, chairman of the Texas Clean Energy Coalition, said in a statement announcing the results of the Brattle Group analysis.

The report examined conditions across the Electric Reliability Council of Texas (ERCOT) territory, which has some of the nation’s greatest wind power capacity and has undergone an unprecedented boom in natural gas production aided by hydraulic fracturing.

Some have asserted that an abundance of inexpensive natural gas will displace renewable energy, thus keeping Texas from fully developing its extensive wind and solar resources.

The Brattle analysis challenges that conclusion, asserting instead that “in the short run, low gas prices are extremely unlikely to change the fact that existing renewables will nearly always have priority over gas-fired plants since, due to the absence of fuel costs, their variable costs are lower than those of essentially all other resources.”

And longer term, the analysis finds, new gas-fired power plants may compete with wind and solar power, but such conditions will be predicated on fluctuation in coal and gas prices, shifts in federal and state energy and environmental policies, transmission development in ERCOT’s territory, and technological advances in wind and solar generation that could further drive down the costs of such resources.

A marriage that replaces coal

“In addition,” the report states, “it is possible that in the long run some combination of renewables and gas will displace existing coal-fired generation.”

Besides the air pollution benefits that come with reduced reliance on coal, Brattle researchers note that natural gas and renewables are well-matched energy resources because gas-fired generation can be more easily dispatched to account for the intermittency of wind and solar power.

Peter Fox-Penner, a co-author of the Brattle study, also noted that cheap natural gas might help renewable energy in a forward-looking sense because blending low-cost gas generation with the higher costs of new renewables lowers the total rate impact on consumers.

“The cost of both wind and solar power has decreased significantly, but they are still not necessarily the lowest cost options, at least not without some explicit consideration of greenhouse gas emissions or continued federal subsidies such as the [production tax credit],” the report states. “However, due to low natural gas prices, electricity bills as a percentage of household income are near their historical lows.

“Consequently, increased levels of a combination of renewable energy and new lower-cost gas power can likely be accomplished without materially increasing the share of income Texans have to dedicate to paying for electricity relative to the past,” the report states.

Ron Seidel, principal with RBS Energy Consulting and a well-known expert on Texas electricity markets, said in an email that most of the Brattle Group findings were sound, though he noted that most of the new natural gas-fired generation in ERCOT’s territory comprises combined cycle plants that are less flexible than simple cycle gas plants when it comes to backup power for intermittent sources like wind or solar.

“As renewables increase, flexible and controllable generation resources will have to increase as well if the ERCOT system is to maintain the desired level of reliability,” said Seidel, who is also on the board of the Dallas-based Principal Solar Institute. He further noted that solar photovoltaic technologies “promise to be much more synergistic with load than wind power has been” and that “dispersed solar resources will be much less subject to variability than wind — especially during peak periods.”

Lastly, Seidel stressed that analyses relying on ERCOT’s Long Term Assessment study for transmission can be useful to make points about generation needs, but neither ERCOT nor the Public Utilities Commission has control over the developers of new power plants.

Concerns about summer heat wave

Spiking electricity rates have been a major concern in Texas as the state struggles to balance electricity supply and demand, especially during periods of peak summertime usage. ERCOT, which oversees the electricity grid for most of the state, has warned that its power reserves could be severely tested this summer if intense prolonged heat waves like those of the past few years occur across the state.

Warnings about summer weather have already driven up wholesale on-peak electricity prices in ERCOT’s territory by more than 9 percent, according to a recent Platts analysis. And the Texas Public Utility Commission on June 1 increased the cap on wholesale electricity prices from $4,500 to $5,000 per megawatt-hour, reflecting the state’s tight power supply margins.

The higher wholesale prices should help motivate power producers to build more capacity in ERCOT’s territory, but they also place greater strain on electricity retailers that must absorb the higher costs or pass them along to customers via rate increases.

One investment group, Panda Power Funds of Dallas, has begun construction on two identical 750-megawatt gas-fired combined cycle power plants in Sherman and Temple, Texas, but those projects are not expected to be completed until 2014. Another 700 MW gas-fired plant being developed jointly by Bechtel Corp. and Coronado Power Ventures is set to begin construction later this year near Harlingen in south Texas, according to developers.

The state will also host one of the nation’s only “clean coal” plants with the expected completion of Summit Power Group LLC’s 400 MW Texas Clean Energy Project near Odessa. That facility will use integrated gasification combined cycle technology along with carbon capture and storage to trap emissions of carbon dioxide.

While Texas’ need for reliable base-load power remains acute, ERCOT reported last month that electricity generated from renewable resources increased 7 percent in 2012, while capacity from renewable resources increased 16 percent. Gains were particularly strong in the solar sector, which saw a 265 percent increase in capacity, from 36,580 MW to 133,642 MW. Wind energy remained the dominant nonfossil energy resource in Texas, however, at 32.5 million MW, up 5 percent from 2011.