Its spring conference having been canceled during the early throes of the coronavirus pandemic, the Gulf Coast Power Association virtually gathered 437 participants last week for its 35th annual Fall Conference.
“I really can’t wait to be together to see you all in person,” GCPA Executive Director Kim Casey said, lamenting her “love-hate” relationship with technology.
Decarbonization and the need for a low-carbon future were among the topics, with a pair of industry experts sharing their expertise during one panel discussion.
“We’re living our future right now,” CenterPoint Energy’s Kenny Mercado said in introducing his panelists. “There’s no better place on earth than Texas to further explore what happens next as we drive our way to a low-carbon future.”
Brett Perlman, CEO of the Center for Houston’s Future and a former Texas Public Utility Commissioner, suggested the state follow the decarbonization example set by Germany, which is similar in size to Texas. The European nation’s guiding principles include continued electrification in parallel to accelerating renewable grid penetration; a focus on renewable power’s ability to displace fossil fuels; using blue hydrogen to address hard-to-decarbonize sectors like steel and refining; and finding entry points for green hydrogen and wind power.
“We want to continue to drive the electrification of things like transportation, reprioritize renewable energy and start to develop this hydrogen resource,” Perlman said. “A lot of this is going to be market-driven. We’ve already seen the market drive coal retirements and storage expansion. There will need to be a policy driver, but we’re waiting on that.”
The Lone Star State leads the nation with 700 million metric tons of carbon dioxide emissions a year. The electric, transportation and industrial sectors each account for about a third of 96% of those emissions. It also leads the nation in wind power with more than 30 GW of capacity, trailing only four countries.
“That’s a surprising picture, for a lot of people,” Perlman said. “Texas is one of the world leaders in non-carbon electric generation. If you asked people, they would say California. They would never guess Texas.
“We have really 10 years, according to climate scientists, to make [decarbonization] work. We have 10 years to really invest in the future, and I don’t see a place that that can happen quicker than ERCOT,” he said.
The Electric Power Research Institute’s Neva Espinoza explained the organization’s Project 2X to 2050, one of the “key pathways” to a decarbonized economy. The initiative looks at the electric, transportation and industry/buildings sectors and how energy efficiency, cleaner electricity, efficient electrification and low-carbon resources will enable decarbonization goals set for 2030 and 2050.
Espinoza said the U.S. generation fleet is 30% less carbon-intensive that it was in 2005. She pointed out that has resulted in average retail prices that are essentially flat.
“We’re seeing a decoupling of economic growth and CO2 emissions,” Espinoza said. “We have to continue to clean our electric fleet so that it is 50% less carbon-intensive than the 2005 electric fleet. We need to add an additional 30 GW of flexible resources to our grid today.”
Developers Eye Energy Storage
Pat Wood III, former FERC and Texas PUC chair, moderated a panel on resource development and power contracting. He closed the discussion by asking each speaker their one wish.
Priestley Consulting’s Vanus Priestley, who was heavily involved in ERCOT’s market design, said he would take the “immense talent” at ERCOT and work on health care. Broad Reach Power CTO Doug Moorehead opted to see an increase in educational awareness around energy storage, from the seventh grade to college, so “education would be faster.”
Caleb Stephenson, co-leader of Calpine’s wholesale commercial operations group, was more realistic.
“I would like to see a national price on carbon. A lot of people are supporting it, and we need to push this through,” he said. “I’m less optimistic about the reality of the politics around it, but we’re going to keep pushing it. The power sector accounts for less than a quarter of greenhouse gases. We’re going to have to lean on the power sector to push others.”
Stephenson said “deeper decarbonization” has renewed the focus on reliability planning and alternatives to peaker plants.
“Recent events in California underscore this point. The days of significant new gas plant development is over,” he said. “This elevates the importance of existing plants. As folks involved in the market, batteries are now the marginal source of new capacity in some regions. Most [load-serving entities’] future plans are overwhelmingly focused on storage.”
Moorehead reminded his audience not to forget about storage’s other assets.
“As renewables flood the market here in ERCOT and elsewhere, energy storage is one of the answers to congestion,” he said. “We’re starting to see now the bankability around energy storage. … I consider battery storage a generation device. It’s effective closer to load, especially in large, urban areas.”
Walker: Summer 2020 Went as Planned
PUC Chair DeAnn Walker reviewed the ERCOT market’s 2020 summer, one without energy emergency alerts or skimpy generation supplies. Just as planned, she intimated.
“The reason we didn’t is exactly what I said when we implemented changes to the ORDC [operating reserve demand curve],” Walker said. “People’s behavior changed.”
Walker’s reference was to a pair of 0.25 standard deviation shifts in the loss-of-load probability calculation since 2018 and using a single, blended ORDC. The curve provides a price adder during periods of generation scarcity. (See Texas PUC Responds to Shrinking Reserve Margin.)
“The market performed great. We had a higher reserve margin going into the summer because of more wind and more solar,” she said. “COVID-19 hasn’t really affected usage. It’s been a different summer, and a lot of it is we have more generation online.”
Walker told moderator and former PUC Commissioner Brandy Marty Marquez that even more generation is on the way.
“Distributed generation is just going to continue to grow. We’re going to see things happen with batteries that no one can envision right now,” she said. “I think we will continue — at least that’s what ERCOT tells me with what’s in the [interconnection] queue — to see a lot more solar and more wind. Whoever thought Texas could put more wind in? But we keep finding ways to put more wind in.
“There is no ISO in the United States or in the world better than ERCOT. I know [it] will stay ahead of it. I don’t really have worries about the summer as much as I did when I came in,” Walker said.
The View from Wall Street
A panel of financial analysts shared their thoughts on the electric sector’s performance during the economic downturn. Rebecca Kruger, managing director for Goldman Sachs, noted that utility share prices tend to trade in inverse proportion to the stock market, but that hasn’t been the case this year.
“You would think [utility stocks] would be trading extremely well … but the sector as a whole is trading at a sizeable discount,” she said. “We’ve always been a believer in scale and diversity in this sector. COVID, for us, brought forward how important scale is. We do see a diverging perspective, with the larger caps tending to outperform.”
“Utility stocks are trading at their cheapest level since the height of the dot-com bubble,” said Bank of America’s Julien Dumoulin-Smith, a familiar presence during electric utility earnings calls. “At the end of the day, what we’re seeing transpire right now is going to result in higher valuations.”
Dumoulin-Smith said the lower discount rates will result in further transmission investment. “Having that low-cost capital is going to invite a lot of transactions for developers,” he said.
That bodes well for an industry where wind, solar and now energy storage have all taken advantage of plunging prices.
“It’s not lost on us that the sector appears to be at a crossroads,” Kruger said. “Two things are driving it: technological advancements — we saw that with renewables, and now with battery storage — and the intense focus on climate change.”
“This industry has already been transforming itself,” said Gabe Grosberg, a senior director for S&P Global. Many more coal plants are slated to close, and there’s continued investment in the industry … $150 billion annually, much of it in renewables. We see a continued trend in renewables … that reflects what the consumers want. They want lower carbon intensity; they want electricity they can count on; but they also want to reduce greenhouse gases.”
COVID Still Major Conversation Piece
As is the case at many events during the new normal, the COVID-19 pandemic was the topic of several conversations.
Delivering one of several keynote addresses, CPS Energy CEO Paula Gold-Williams shared her organization’s response as the pandemic took hold in February and March.
“Our organization had no idea how overwhelming this pandemic would be. It was emotionally intense,” she said. “With our organization, we had to restructure everything. We recognized we were an essential service, and we had to declare every position an essential service. There were 3,100 of us, and it took all 3,100 of us to work.”
Joe Tracy, executive vice president and senior adviser to the Federal Reserve Bank of Dallas’ president, said the pandemic forced the Fed to rely on new forms of data because more forecasting methods rely on “backward-looking” government data.
“We turned to cellphone data to get a measure of people’s mobility,” he said, noting mobility bottomed out in March and April when Americans started sheltering at home. “We saw it … slowly start to recover as many states got a handle on the virus.”
But no one had a more up-close and personal view of the pandemic than Phil Wilson, the Lower Colorado River Authority’s general manager. Having previously served as Texas’ secretary of state and as the Texas Department of Transportation executive director, Wilson was called upon again when the state’s Health and Human Services Commission’s (HHSC) executive commissioner took a position in his native Louisiana. He balanced both of his jobs during a daily routine that left a little time for dinner and a few hours of sleep.
“You’re only as good as the people working with you, and I had a strong team there. I made some lifelong friends because you’re in the trenches trying to solve some very difficult situations,” Wilson said. “The HHSC has a significant portion of its workforce that can’t work remotely. I wanted to make sure those individuals are just as valued as those who work remotely. It really comes down to the fact you’re as good as your people.”
ERCOT’s Maggio Wins Award
Dave Maggio, ERCOT’s director of market design and analysis, was honored with GCPA’s emPOWERing Young Professionals Award, presented to energy professionals under the age of 40.
Maggio joined ERCOT in 2007 as part of a group of engineers hired to bring the nodal market online. He is currently driving the grid operator’s implementation of real-time co-optimization.
As previously announced, 40-year industry veteran Tom Payton was awarded the Pat Wood Power Star Award by its namesake. The award recognizes significant contributions to Texas’ competitive energy markets.
Payton served on the ERCOT Board of Directors from 2002 until 2006. He retired in 2013 after serving as senior vice president of power for Occidental Petroleum.
