Texas Is Failing To Fix The Grid (Again)

AUSTIN, TX - JUNE 08: State Rep. Chris Paddie (L) and State Senator Kelly Hancock (R) watch as Texas ... More Governor Greg Abbott signs Senate Bills 2 and 3 during a press conference at the Capitol on June 8, 2021 in Austin, Texas. Governor Abbott signed the bills into law to reform the Electric Reliability Council of Texas and weatherize and improve the reliability of the state's power grid. The bill signing comes months after a disastrous February winter storm that caused widespread power outages and left dozens of Texans dead. (Photo by Montinique Monroe/Getty Images)
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In Texas, electricity generating companies have no incentive to build enough power plants to keep the state online during periods of high demand – think hot August days or a winter freeze. For more than 25 years, the Texas Legislature has done nothing to address this fatal design flaw.
The Texas grid managed by the Electric Reliability Council of Texas, ERCOT, is an “electricity only” grid, meaning generators only earn revenue when they are actively feeding electricity to the grid. It also means ERCOT, the only purchaser of electricity in the wholesale market, only buys electricity on a minute-by-minute basis, without regard for the investment that is needed to power the state’s growing economy.
Before committing to build a natural gas power plant today, a company has to question what the ERCOT market will look like in the five years or more it will take to build the plant (which just got more expensive due to steel tariffs and a five-year backlog for gas turbines). Wind and solar farms require zero-cost fuel and few employees, so they will continue to displace more expensive coal and natural gas power plants in this minute-by-minute calculus. The obvious problem is that electricity from wind and solar farms is intermittent. Utility scale batteries will solve that problem in time, but not today.
Because the Texas government has consistently turned down commercial offers from investment groups to build new natural gas power plants, the state by default has gone all-in on the wind and solar farms that have exploded across the landscape.
So what’s the Legislature doing? Of the bills pending now, one would require wind and solar farms to contract for backup supply from dispatchable power plants or batteries. But there already are too few coal, natural gas, and nuclear power plants to satisfy peak demand in Texas, and there’s certainly not enough to backstop the growing supply of wind and solar. The bill’s requirement cannot be met in a timely manner. Is the Legislature’s preferred solution really to impede wind and solar growth when everyone in Austin knows only wind and solar power helped the state avoid rolling blackouts over the past two summers and winters. The cost of this requirement would be borne by the new wind and solar farms, rather than spread across all consumers – making less investment in all modes of generation more likely just when the state needs more electricity.