Renewables may be a victim in Texas grid revamp

By Edward Klump | 11/30/2021 07:05 AM EST

The CoServ Solar Station in Denton County, Texas.

The CoServ Solar Station in Denton County, Texas. Ken Oltmann/CoServ

A high-stakes effort to reform the Texas electric grid after deadly blackouts in February may have an unexpected byproduct: a change in direction for renewables.

The Public Utility Commission of Texas has zeroed in on intermittent generation as a critical issue as it tries to boost grid reliability. Texas has the most installed wind energy capacity in the United States and a rising solar profile, so any new policies could have a significant impact on emissions and the electricity mix.

Supporters of renewables worry that changes in Texas could drive up costs and hurt the economics of green energy without solving problems tied to other resources, especially natural gas-fueled power plants. Renewable energy interests are jockeying with fossil fuel companies and retail electricity providers for the PUC’s attention.

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While regulators are expected to provide some direction before the end of 2021, it’s not yet clear whether renewable projects will see a new market structure that could decrease their value.

“There’s two or three different paths,” said Michael Jewell, an attorney with Jewell & Associates who represents clean energy and retail electricity clients.

Jewell said the PUC is trying to address three issues: how to respond to Winter Storm Uri, which struck in February; how to encourage existing generation to stick around; and how to entice new generation. A number of advocates are concerned that an option listed by PUC Chair Peter Lake last month could require retail power companies to line up resources in advance, potentially discounting the contribution of renewables in the process.

Ideas floated by other commissioners include a dispatchable energy credit program that could bolster generation that should be ready to run when needed, as well as a strategic reliability service that could act as an insurance policy to help during system emergencies. Jewell said the credit program and reliability service separately or together would help reliability while also not putting renewables at a disadvantage.

Other items under discussion in the primary Texas market include a lower price cap in times of scarcity compared to earlier this year and the implementation of new ancillary services that help balance the grid.

What isn’t up for debate is the need to act to prevent a repeat of the devastation from February’s winter storm, which Texas says led to more than 200 deaths in the state. Casualties occurred as power outages left over 4 million homes and businesses without power for hours or days. Weatherization standards are a major part of the response, but they remain a work in progress. Lake has insisted that a significant overhaul also is coming for the region managed by the Electric Reliability Council of Texas (ERCOT), the power grid operator for much of the state.

This year has been a roller-coaster ride for Texas wind and solar, as Gov. Greg Abbott (R) was among those pointing early blame for the February crisis toward renewables. ERCOT showed that natural gas had the most generation capacity unavailable in its footprint during the winter storm, though power sources across the board had failures — including wind and solar. The renewables industry fought off a number of proposals during a regular Texas legislative session this year that could have weighed heavily on it (Energywire, April 21).

Then came a July letter from Abbott directing the PUC to take specific actions to make sure "all Texans have access to reliable, safe, and affordable power," including a directive to streamline incentives in the ERCOT market to foster natural gas, coal and nuclear power. He also called for allocating reliability costs to generators that can’t ensure their own availability, such as wind and solar. Abbott appoints the PUC members and the state Senate confirms them, but the PUC takes its own votes while also following legislative mandates.

The regulatory body has been expanded to five positions from three, though only four posts are currently filled — meaning compromise may be needed on hot-button items, unless another regulator is appointed soon by the governor. While concerns remain about the upcoming winter, Abbott recently told a Fox television affiliate in Austin, Texas, that the lights will stay on, citing Texas legislation and a new approach at ERCOT.

Renewable projects may not be able to have power purchase agreements renegotiated if regulatory changes make contracts less attractive, according to Jeff Clark, president of the Advanced Power Alliance, whose members have holdings in renewable energy. That could affect projects’ viability and value, he said.

Clark expressed concern about potential unfair market changes that could “shift a bunch of costs unnecessarily onto renewable generation that ultimately trickle down and have a harmful negative impact on our communities and our schools.”

“But we’re also concerned about what it does to future investment in Texas because this is a state that needs more energy,” he said.

Too fast?

Uncertainty is a feature right now in Texas’ main power market, which saw prices spike in February during the crisis.

The utility commission has convened work sessions in the wake of the February blackouts. Comments on possible market design changes in an ongoing docket show a range of preferences from power companies to renewable energy supporters on how to structure the market and incentivize paths that could lead to more reliability.

Lake, the PUC chair, issued a memo in October laying out ideas such as using a market-based mechanism to bring units online earlier during times of scarcity and ensuring that electricity providers procure the power they have promised to customers. The PUC staff followed up with a list of questions for interested parties to answer.

Commissioner Will McAdams had memos this month, including one about the potential dispatchable energy credit program. Commissioner Lori Cobos filed a memo mentioning the possible strategic reliability service.

Katie Coleman, outside counsel for Texas Industrial Energy Consumers (TIEC), said important issues for large power users include managing flexibility and costs. But she said electricity problems during the winter storm didn’t occur because of market design.

“Uri was about a state that is not set up for those weather conditions, top to bottom,” Coleman said, noting issues from electricity to roadways to water systems. She said Texas lawmakers have worked to address root causes around coordination, weatherization and fuel security.

Coleman said the organization she represents believes there’s a place for renewables in Texas’ main power market and is not seeking to target them. At the same time, she said, people need to recognize the reliability impact of how wind and solar operate intermittently. TIEC is an influential group of industrial power consumers that it is active in dockets at the PUC.

“The resource mix is changing, and I think people are concerned about whether the reliability tools and kind of the market features we’ve always relied on to manage this are going to be as effective in that new world,” Coleman said.

Cyrus Reed, conservation director at the Lone Star Chapter of the Sierra Club, said of the PUC commissioners’ process for redesigning the ERCOT market: “I think they’re moving too fast.”

He noted that the PUC passed a rule on weatherization ahead of winter with plans to come back with a broader look. Reed said the same thing could occur around market design, with some changes possibly needing more time. He said he’d like to see more public hearings that bring in views beyond those of major market participants and advocacy groups.

In emailed comments, the PUC said it welcomes “public comment all day every day through our online portal and at every open meeting.” It said Abbott and state lawmakers gave “clear direction” that the PUC is executing.

“We have a legislative mandate to get this done in a timely fashion, so we’re moving forward in a deliberate, collaborative manner, making substantive physical and operational changes to the grid and pursuing reliability-driven changes to the market as winter bears down upon the state,” the PUC said.

Reed said the discussions get back to whether generators feel they can make enough money in the market and invest in the future. He said there’s a need to open a project on energy efficiency and load management utility programs to see how they can be more effective, plus a need to more fully integrate distributed resources in the market. He didn’t take issue with a focus on resources that can be dispatched to produce power.

“I don’t think I have a problem with the word ‘dispatchable’ as long as it includes everything that’s dispatchable and not just the traditional, you know, big power plants,” Reed said.

Reed expressed opposition to the potential obligation for electricity providers to line up resources as outlined by the PUC chair.

In a filing with the PUC, Houston-based NRG Energy Inc., which generates and sells electricity, argued that such an obligation for so-called load serving entities would be intended “to create demand for contracts to support investments in resources that contribute to system reliability such as dispatchable capacity or demand response.”

In a statement echoing support for a version of that idea, Travis Kavulla, vice president of regulatory affairs at NRG, said there’s "a stark choice" before the PUC "about whether to take comprehensive action, or something short of that."

Meanwhile, Reed suggested the dispatchable energy credit program, if chosen, should be expanded to include demand response and distributed generation. And he said his view of the strategic reliability service idea may depend on what details emerge, though he said it has some merit.

Gregory Wetstone, CEO of the American Council on Renewable Energy, urged PUC members in a Nov. 23 letter to have “thoughtful deliberation on long-term market redesign proposals.” The letter was sent under the banner of the U.S. Partnership for Renewable Energy Finance.

Wetstone said companies “are eager to invest in the future of the ERCOT market,” and he encouraged regulators “to give investors the clarity they need to deploy their resources in Texas.”

‘Thorny discussion’

The PUC said each possible change would “send its own ripple through the system that affects other elements, so we’re taking a holistic approach.” The commission’s statement said the PUC is “agnostic on energy sources as long as they meet the guiding requirement: reliability.”

“The market redesign is predicated on providing market incentives for that reliability and we are confident the market will respond with innovation and competition that ultimately benefit all Texans,” the PUC said in an email.

Coleman said demand response and distributed generation may not make people feel as comfortable as building a large natural gas-fueled, combined-cycle power plant. She said the market should be the biggest part of the solution to managing operational issues that intermittent generation creates.

Coleman also said TIEC supports finding more targeted revenues to incentivize investments in resources that can fill gaps and help ensure reliability. She suggested procuring additional dispatchable generation each day or perhaps seasonally.

It’s not clear whether changes from the PUC might be used to disincentivize investment in renewables. Coleman said TIEC is open to looking at causes to help assign grid management costs.

“It’s a thorny discussion,” she said. “I don’t know where that comes out.”

Bill Peacock, policy director for the Energy Alliance, a project of the Texas Business Coalition, said he’s concerned that Texas policymakers are “undermining what was at one point the most competitive electricity market in the world.”

Peacock said the PUC is not targeting the “massive” government intervention in the marketplace in the form of aid for renewable energy as well as traditional generators. He said the market redesign seems to be driven by industry players seeking to boost subsidies. Instead, Peacock suggested options such as a minimum offer price or requiring renewable energy to dispatch at a certain level. And he called for ending the broad socialization of transmission costs.

Jewell, whose clients include clean energy companies, said he believes in the process at the PUC but is concerned that some solutions would increase costs for customers and may not address all of the issues the commission is wrestling with these days.

He called for helping fast-ramping resources to enter the market, whether that means batteries or natural gas assets. He said the proposed dispatchable energy credit program would help do that.

Jewell also worried that the commission could look to assign costs of ancillary services only to intermittent resources as it reviews ERCOT’s market design.

Clark said his vision isn’t 100 percent renewable power, but rather a system that balances the best of each resource. If there’s a move to start assigning certain costs, he said, his group will take whatever recourse is needed to make sure they go to all resources based on the causes.

“If we stay focused on what’s good for the consumers and what’s good for the state, then … we’ll be well served,” Clark said. “If we allow this to be another political exercise to try to shift benefit to different resources at the expense of others, then consumers are going to suffer, and we’ll be doing this again in a few years.”

He noted that natural gas prices have climbed this year, as well. He said renewables benefit consumers through cheaper power, the state through development and the environment with reduced emissions.

“We’re selling affordable. We’re selling low emission. Other resources are selling dispatchable, high reliability,” Clark said. “It’s incumbent upon those dispatchable resources to actually dispatch, or the grid doesn’t work.”

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