Why Texas is Banking on Solar Power

Texas summers are hot. Really hot. As in, fry-an-egg-on-the-sidewalk kind of hot. However, unless you’re an especially precocious kid, most of us don’t observe the state’s unforgiving heat in terms of yolks and egg whites. Instead, we experience the Texas summer as Willis Carrier, the inventor of modern air conditioning, intended — indoors.

Oh, the cool, almost sweet-tasting air of the AC. Its constant hum is music to every Texan’s ears. Yet, it’s easy to forget about the few days each summer when the Texas electric grid works at maximum capacity. These are the days when the Electric Reliability Council of Texas (ERCOT) has to consider calling for rolling brownouts because of the increased demand.

Without electricity, a dead AC is essentially no AC. And no air conditioning in Texas is a mad cry for help.

When the Texas Electric Grid Cried for Help

When the price of electricity in Texas hit its legal limit of $9,000 per megawatt-hour on August 12th, 2019, you would have thought that every possible electricity generator would have rushed to pump out power to keep the ACs humming. Instead, all the coal-fired power plants retired and went home, and although wind supposedly RSVP’d, the renewable power source was ultimately a no-show.¹

Fortunately, with demand on that sweltering day cresting at 74,5000 megawatts, Texas barely scraped by with just 2,300 megawatt-hours left in reserve.²

But besides receiving a generic-seeming text message with a request to conserve power, your average Texas electricity customer wasn’t affected because they were on a fixed-rate plan. And that’s a good thing for retail electricity providers and customers alike!

But for customers who allowed the wholesale power market to set their prices, there was a dramatic spike in their bill (and their frustration). That’s what happens when an energy company directly ties the price of their electricity to the market price of electricity — which, remind you, peaked at $9,000 per megawatt-hour that August afternoon.

Big Changes are Underway for Texas’s Energy Portfolio

As scary as that peak demand event was in August 2019, Texas-sized changes are on the horizon for the state’s energy portfolio. And, surprisingly, wind won’t have much to do with it. With more than 4 Gigawatts (GW) of solar energy capacity expected to be installed over the next five years, Texas will soon lead the nation in solar generation.³

As more coal plants retire and as the production tax credit for wind power vanishes at the end of 2021, increased investment in solar energy capacity is more important than ever. When coal plants shut down, although considered a huge win for the environment, Texas loses its generation capacity, and it must be replenished by other energy sources.

Additionally, in advance of wind power seeing its credits phased out, generators across the state rush to complete projects. This could decrease electricity prices in the short term, as more wind capacity will be added to the grid. But in the long term, those prices could rise as the generation slacks off, and that could turn off some consumers.

Fortunately for solar generation companies, the Solar Investment Tax Credit, otherwise known as the ITC, will continue to exist for commercial and utility-scale projects through 2022. This development works in tandem with the falling price of solar installations — 32% over the last five years.³

What ERCOT is Saying About the Future of Texas Energy

As the governmental entity that operates the electric grid and manages the deregulated market covering 75 percent of Texas, ERCOT postulates that wind and solar will eventually complement each other in terms of meeting load demand.⁴

• Wind tends to blow more in the late afternoon to mid-morning hours — when solar is rendered inactive.
• Solar is most active from midday to late afternoon when the wind is tepid.

In May 2019, ERCOT released its bi-annual Capacity Reserve & Demand (CDR) report. The big news was its tight reserve margin — the capacity to generate more electricity than the demand of the electric system — of 8.6%.⁵ While such a number is less than ideal (especially in light of the hot summer that followed), ERCOT outlined specific plans for increasing that margin to 10.5% in 2020 and nearly doubling it to 15.2% by 2021, with 2019 serving as the base year.⁶

However, the current plan is for the margin to peak in 2021 and eventually decrease to 7.8% in 2024, which is even lower than in 2019. When you factor in population growth projections for Texas, these numbers indicate that much more generation will be needed to keep the reserve margin in a safe range.

Which begs the question: What’s on the horizon for Texas solar and wind installations?

What’s in Store for Texas Solar and Wind Power?

We expect to see more coal plants being shut down and replaced by more environmentally friendly renewable sources of energy generation, particularly wind and solar, to meet the growing demand from consumers on the electric grid. In fact, wind and solar might even follow ERCOT’s recommendation and take a symbiotic approach when it comes to generating electricity, mainly because they generate their electricity at different times of day.

Finally, we expect solar to take center stage when it comes to meeting load demand during peak summer months. So, while wind may be front and center at this moment, we are confident that solar will play a much more important role in the transition to a clean energy economy taking over Texas.

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Sources:

1. https://www.bloomberg.com/news/articles/2019-08-26/sometimes-a-greener-grid-means-a-40-000-spike-in-power-prices
2. https://www-houstonchronicle-com.cdn.ampproject.org/c/s/www.houstonchronicle.com/business/columnists/tomlinson/amp/The-competitive-Texas-electric-grid-proves-14482970.php
3. https://www.seia.org/state-solar-policy/texas-solar
4. http://www.ercot.com/content/wcm/lists/164134/Solar_One_Pager_FINAL.pdf
5. http://www.ercot.com/news/releases/show/181248
6. http://www.ercot.com/gridinfo/resource