AUSTIN, Texas — Infocast’s Texas Renewable Energy Summit attracted developers, potential off-takers and other industry insiders to the state’s capital Sept. 5-7 for discussions on the uncertainties and risks of the renewable energy market. Panel discussions focused on the continued growth of wind energy and the coming wave of solar energy, the transmission facilities needed to accommodate renewables, and the market’s ability to incorporate them.

The summit’s clear consensus? Solar power is a better play now than wind energy in Texas. ERCOT, which manages about 90% of the state’s grid, projects it will add 3 GW of solar capacity by 2020 and 20.2 GW of utility-scale solar by 2031, double the additions expected from wind.

The state still leads all others in installed wind capacity with nearly 22.6 GW, according to the U.S. Department of Energy. However, the 2.3 GW of capacity Texas added in 2017 was below the 3.6 GW installed in 2015 or the 2.6 GW added in 2016.

Asked why the state presents such an inviting market for solar, Shalini Ramanathan, vice president of origination for RES Americas, repeated the question. “Why Texas?” she asked. “Because it’s hot and flat.”

And there’s so much open space in Texas, said Paul Turner, who sites solar developments for Hecate Energy as vice president of business development.

“If I see a pump jack, I go 3 miles away. I see a wind farm, I go 3 miles away,” he said. “At this point, there are so many options, I just avoid [other infrastructure].”

“It just feels like it’s time. Solar has a lot of headroom to grow,” Ramanathan said, pointing to dropping prices for solar panels and rising natural gas prices. “The challenge is getting off-takers. A lot of the utilities have already bought a lot of wind and solar, but the munis and co-ops are still interested. Corporate off-takers are great. We’ve seen a lot of interest in Texas that directly corresponds to the prices.”

Turner referenced a recent ExxonMobil offer to purchase up to 250 MW of solar and wind energy in Texas.

“Our industry is like lemmings. If ExxonMobil starts doing it, other companies are going to do it as well,” he said. “They don’t want to be left behind. Their shareholders are going to ask, ‘Why aren’t we doing it? Why aren’t we putting it on the cover of the proverbial annual report?’

“The genie’s out of the bottle,” Turner said.

ENGIE Solar North America Managing Director Marc-Alain Behar said potential buyers from El Paso, which is outside ERCOT’s market, have been “pretty stunned” by the low prices they’ve seen for solar.

“If you can make it here, you can make it in a lot of places,” Behar said.

Developers Still High on Texas’ Wind Resources

Wind developers agreed that there is still room for projects in Texas, saying as much as 5 GW of capacity may be built before the federal tax credits expire in 2019.

“It seems there are a plethora of projects, but good projects will get built,” said Matt Jacobs, who is responsible for Tradewind Energy’s portfolio siting. “We’re really excited about the ERCOT market. From a national perspective, ERCOT is a market we see as attractive as any market in the U.S.”

Jacobs lauded the ease of navigating ERCOT’s interconnection queue, while others pointed to falling prices of the technology and shorter construction timelines in Texas than in other RTOs. That makes it easier for developers to put up with transmission congestion and curtailments, particularly in the Panhandle.

“We have well over a decade or more of experience working in this market. There’s always opportunities, but there’s always some headwinds,” EDF Renewables’ Caroline Mead said. “Today, it’s really about the economics. The economics speak volumes. The pricing of wind is so compelling … that’s the main driver at this point.”

Tri Global Energy President Tom Carbone agreed, pointing to renewable energy’s ever-increasing share of ERCOT’s fuel mix. “When [you] have 17% of the load being served by renewables, that says something,” he said.

“We’re at a point now where there’s a value proposition for these sources of generation,” Recurrent Energy’s Jacob Steubing said. “We’re not being driven here in Texas by carbon goals or renewable goals. Economics are driving the buyers. This is probably the only room where a lot of folks consider low prices a bad thing. The general public doesn’t see that as a problem.”

Philip Moore, vice president of development for Lincoln Clean Energy, said ERCOT’s market is unique, a place “where ideas are tested out and challenged,” despite a natural resistance to change. Longer blades, larger turbines and other technological advancements have lowered prices, improved efficiency and opened new areas to wind development, he said.

“With a 40% drop in CapEx, you can go closer to where demand is … but it’s not without its challenges. We’re starting to see new encroachment issues,” Moore said, referring to military aviation training routes and organized political opposition. “We have to be better at explaining the investment benefits of a lot of capital coming to rural areas — and slightly less rural areas — and what the tradeoff is. We need to do a better job, because technology allows us to go to more places.”

Cooperatives Adapting to Changing Member Needs

Texas’ electric cooperatives are finding their business models are changing. Where once they sold meter boxes and security lights to their members, they are now meeting customer demand for high-speed Internet service and adding wind and solar to their portfolios, Bandera Electric Cooperative CEO Bill Hetherington said.

Bandera is the second largest certified Tesla Powerwall installer in the state. It is promoting the results of a Bloomberg New Energy Finance (BNEF) study that found lithium-ion storage batteries prices have dropped by 80% in the past eight years and projects a $548 billion investment in energy storage by 2050.

“The cost is important, but a small percentage of our customers want to support renewables and buy Tesla Powerwalls,” Hetherington said. “We’ve retooled ourselves and focused on our renewable subsidiaries.”

Bandera serves more than 27,000 members in its footprint northwest of San Antonio. “Our service territory is pretty rural. There are areas where it would actually be cheaper to put in a microgrid rather than pay the cost of extending a service line,” Hetherington said.

He said that the co-op’s work with microgrids caught the National Rural Electric Cooperative Association’s attention, and it selected Bandera for a project to create microgrids in Liberia and Uganda.

Hetherington said 662 million Africans don’t have access to electricity, but that the continent also presents the second fastest growing economy in the world. “Investing in the future pays dividends for our customers and our members,” he said.

The state’s more than 75 electric cooperatives are still cognizant of their members’ concerns and wants, Hetherington and his fellow panelists said.

“Our membership looks at the bottom line. They don’t want to pay a premium to feel good. They want to do it because it makes economic sense,” Golden Spread Electric Cooperative COO J. Jolly Hayden said. “Some members have done community solar on their own. We have a 1-MW model that gives them a pretty good price. We’re also looking at a larger project, but the members haven’t signed off on it.”

“We’re small enough and flexible enough to make changes, from a commodity-based entity to a service-based company that is connected to its customers,” Hetherington said, adding he never thought he would have 1,800 Internet customers. “The technology has changed. What doesn’t change is the support our members expect from us.”

Economic Realities Driving Municipal Supply Decisions

Denton Municipal Electric General Manager George Morrow, a newcomer to the Texas market after years in California, said the city’s recent announcement that it intends to become the state’s second 100% renewable-powered municipality was driven by the market’s realities.

As part of the Texas Municipal Power Agency, the city owns the coal-fired Gibbons Creek plant, a 35-year-old, 454-MW unit that has provided more than half of its generation for a decade. The plant, which environmentalists would like to see permanently retired, will return to seasonal mothballs in October.

Morrow said in looking for replacement energy, he was surprised by the prices he was seeing for renewables. “‘Wow, look at what you’re offering us!’” Morrow recalled. “It just made sense. We were kind of in a sweet spot. Not everybody can be 100% renewable. The system can’t survive.”

John Bonnin, who manages CPS Energy’s supply and market operations, recalled his own experience with request-for-proposal prices in trying to secure power for San Antonio. He likened the situation to one of the final scenes in the 1987 film “Predator,” when the titular alien hunter removes its helmet.

“‘You are one ugly…’” Bonnin said, stopping short of parroting Arnold Schwarzenegger’s entire line. “That’s kind of what it was like year after year, because the [RFP] prices kept going up. There was no thought of solar energy at the time, because people were talking about $250, $300/MWh prices.

“So fast forward a few years. What is our plan now? We have older coal plants ready to retire, so how do you replace that capacity on peak? Wind and solar can give you some peak, but you’re not paying an out of market price for that [any longer]. The big change in our company is we’re not doing this because it’s a mandate, we’re doing this because it’s economic.”

“We were chasing environmental goals before. We were chasing goals, but we were trying to minimize the price effect,” Austin Energy’s Khalil Shalabi said. “That’s changed with recent pricing we’ve seen. We’ve gone more into a mode of risk mitigation. How do [prices] fare under different regulatory paradigms? … We can’t predict the future, but we can look at the risks and quantify those for our customers.”

Jim Briggs, the utilities manager for Georgetown, the other 100% renewable Texas city, said regulatory considerations played a role in the city’s decision to go green when it ended a coal-heavy supply contract in 2012.

“My recommendation to the [City] Council and [utility] board was that renewables needed to be a portion of our energy mix,” he said. “We don’t know what’s coming out of Washington for renewable standards, but I can tell you that, in 30 to 40 years of doing this, they have never been reduced. … You can expect greenhouse gas legislation is going to continue. It might subside during one administration, but it’s going to be back again.”

ERCOT’s Reserve Margin not Expected to Grow

Several panelists agreed ERCOT may have been lucky to escape the summer heat with a reserve margin of only 11%. They pointed out the generators performed when called on, and though the system exceeded its previous peak-demand record 14 times during July, it also benefited from cooler-than-normal weather in June and August.

“Maybe it was some combination of market performance by ERCOT and luck,” said Kathleen Spees, a principal with The Brattle Group. “The wind performed, and the traditional generators showed up. We had some scarcity pricing, but it wasn’t [that] extreme. We skated through a summer that could have been very bad in terms of reliability, but very good for the money. Did we just get lucky? Was that the market working as intended? Or are we at a very low reserve margin, and the prices just didn’t get high?”

“We feel like everything worked out as intended,” said Erika Bierschbach, Austin Energy’s manager of market operations. “The market is vibrant. With regard to most concerns before the summer started, there is still risk in the market.”

ERCOT’s Dave Maggio was quick to point out the grid operator didn’t have to declare any emergencies during the summer and saw a lack of scarcity pricing.

“A big part of the story is going to be the resource performance. We got a lot of support from generation resources and transmission resources. When supply was tight, we didn’t have resources offline,” Maggio said. “The upshot was, we took less out-of-market actions, which is what everyone prefers.”

“From the ERCOT perspective, part of the success we had was effective communications with everyone,” said Pete Warnken, the ISO’s manager of resource adequacy. “The expectation is, as we continue to have lower reserve margins, the market and ERCOT and all the participants need to continue that discussion. We always focus on the summer peak, but fall and winter is coming up, and lowered reserve margins affect that as well.”

Spees called ERCOT’s summer performance with tight reserve margins “one roll of the dice.”

“I don’t think we would get lucky that often,” she said. “One big outage, or the wind doesn’t show up during peak load, or something a little closer to 2011’s [record-breaking hot] weather … if we see a similar reserve margin next year, we could see something very different.”

But don’t expect ERCOT’s market prices to remain depressed for the rest of 2018, BNEF Power Market Analyst Joshua Danial said.

“Some of the least healthy units run when spark spreads are negative, under arcane contracts where their power is guaranteed to have an off-taker,” said Danial, who expects more fossil retirements in the near future. “When those contracts fall off, there’ll be a lot of reconsidering whether to keep them running or not.”

Manan Ahuja, senior director of North America power analytics for S&P Global Platts, said he expects to see reserve margins of 12 to 13% by 2022.

“The supply increase is tracking pretty closely to the load increase,” he said, pointing to an ERCOT interconnection queue that numbers more than 19 GW of projects with signed agreements. “There are small gas projects in the queue, about 4 GW of wind that could come online in 2019. … We expect to see reserve margins that are pretty similar [to 11%] next year.”

— Tom Kleckner