Transmission is latest front in fossil fuels v. renewables battle

Source: By Lynn Sixel, Houston Chronicle • Posted: Monday, December 3, 2018

Calpine Corp. of Houston and NRG Energy, of Houston and Princeton, N.J., have asked the state Public Utility Commission to change the way transmission costs are apportioned among power generators, a move that wold undo a key element of the policies that have made Texas the nation’s top producer of wind energy. Instead of using state tax credits, Texas has attracted billions of dollars in investment in wind energy by offering generators easy access to the biggest electricity markets through low-cost transmission.

Not only would the change proposed by Calpine and NRG increase the price of electricity from West Texas wind and solar farms, analysts said, it could also discourage new investment in renewable projects.

“This is the old energy industry fighting back,” said Ramanan Krishnamoorti, chief energy officer at the University of Houston.

The fight is part of a battle that has widened in recent years as wind, solar and other renewable technologies have become more competitive, gained an increasing share of power markets and cut into profits of traditional generators such as Calpine and NRG. Subsidies and other policies that have helped wind and solar energy compete with coal, nuclear and natural gas plants are coming under attack in Texas, other states and Washington.

Market distortions

In Texas, for example, Texas legislators voted last year to stop providing property tax breaks to wind farms built within 25 miles of military airfields, a measure passed ostensibly to address local concerns that the turbines could possibly interfere with radar and flight paths and make installations vulnerable if another round of base closings were launched. But the lobbying effort was financed by anti-renewable groups with opaque funding sources, said Jeffrey Clark, president of Wind Coalition, an Austin trade group representing the wind, solar and storage industry.

“They just capitalized on this issue,” said Clark.

Oklahoma, which is second only to Texas in wind generating capacity, last year ended state tax breaks for wind farms following a campaign backed by Harold Hamm, CEO of Continental Resources and an adviser to President Donald Trump, and other oil and gas companies. In Washington, the Trump administration has proposed, so far without success, deep cuts to renewable subsidies and research funding, while advocating for a bail out of coal and nuclear power plants that have been undercut by cheaper energy generated by renewables and natural gas.

Trump recently nominated a critic of renewable power and subsidies to the Federal Energy Regulatory Commission, which oversees power markets. Bernard McNamee, a former staffer at the conservative Austin think tank Texas Public Policy Foundation, has advocated for subsidies for coal and nuclear plants, arguing that they are victims of market distortions caused by government support for wind and solar power, while attacking renewables as unreliable.

In a video of an event hosted by the Texas Public Policy Foundation earlier this year, McNamee, whose nomination was advanced last week to a confirmation vote in the Senate, denigrated wind solar energy as an intermittent power source that “screws up the whole physics of the grid.”

When Texas deregulated the power market two decades ago, it made a strategic decision to spread the cost of the electricity that is naturally lost as electrons travel across the state’s power lines equally among generators. That way, it doesn’t matter if a power plant is next door or 1,000 miles away, an approach that helped promote the growth of clean energy from the remotest parts of West Texas, where winds blow hard and the sun shines almost all the time.

Today, wind generating capacity in Texas exceeds 20,000 megawatts, surpassing both nuclear and coal. Together, wind and solar account for 18 percent of power generated in Texas, compared to 8 percent nationally.

But NRG and Calpine are asking Texas regulators to end the equal sharing of lost electricity costs and assign them to companies according to the distance the electricity moves along transmission lines, giving their coal and natural gas power plants, which are closer to Houston and other population centers, an advantage.

Wind to the rescue

The two companies have struggled in recent years because of low electricity prices and competition from renewables, particularly wind energy from West Texas. The companies also have sought relief from the Public Utility Commission, but lately without success.

This past summer illustrated the challenges that the power generators face. The companies typically make their money during periods of the high demand — think hot Texas summer afternoons — when power is in short supply and wholesale prices spike.

The shutdown of three coal plants in Texas and a stretch of 100 degree temperatures were expected to create shortages and send wholesale prices soaring, a bonanza for the power companies. But the shortages didn’t materialize, which the Public Utility Commission attributed to wind farms generating more electricity than expected.

That was good for consumers, but for not for power generators’ profits. NRG and Calpine’s transmission proposal, opponents say, would increase consumer prices in many parts of Texas, including Dallas and West Texas. Opponents also say it would discourage the development of wind and solar farms, encourage development of fossil-fuel power plants close to big cities at a time when the threat of climate change has become more dire.

But NRG and Calpine argue that their proposal revolves around market efficiency. Producers don’t have incentives to build new power facilities close to their customers if they don’t have to pay for the power that is lost by transporting it over a long distance, according to the companies’ filing to the utility commission.

Directly assigning transmission losses would expose the true costs of delivering electricity from remote locations where renewable resources have been concentrated, NRG and Calpine said, especially West Texas which has seen an over-building of renewables that have overwhelmed the existing transmission infrastructure.

If generators have to pay their own transmission costs, NRG and Calpine believes consumers ultimately will benefit from lower costs. Nothing in the proposal, however, would require generators to pass transmission savings to their customers.

Other states allocate line losses, said Calpine spokesman Brett Kerr. Why not Texas?

NRG said the proposal doesn’t stop the development of solar power or wind power, but provides an incentive to build them closer to population centers like Houston.

“Why not build solar here?” asked NRG spokesman David Knox. “Why not build wind?”

Pollution problems

But the Houston area doesn’t have the gale-force winds that blow in West Texas or the thousands of acres of farmland to plant the giant turbines, energy experts said. Instead, they said, the proposal is designed to create financial incentives to build power plants burning fossil fuels closer to big cities.

But would that be good for Houston? Probably not, since thee region already struggles with pollution caused by the large petrochemical industry, heavy port traffic and car-dependent culture, according to Kim Rainwater, legal analyst for the Environmental Defense Fund, an advocacy group.

“It wouldn’t be a good idea,” she said, “to exacerbate this problem.”