AUSTIN, Texas — Infocast’s Texas Renewable Energy Summit last week brought developers, corporate off-takers, cities, municipalities, cooperatives, the financing community and other key stakeholders to sort out where ERCOT’s market is headed, stay abreast of the latest trends shaping the Texas renewables market, and glean the latest insights into the market.
Meeting in the midst of 100-degree-plus heat along the banks of Lady Bird Lake in downtown Austin with ERCOT facing tight grid conditions, much of the conversation centered on the market’s performance this summer.
John Hall, Texas-based director of regulatory and legislative affairs for the Environmental Defense Fund, complimented ERCOT’s staff on meeting record customer demand despite an 8.6% reserve margin. The grid operator has been forced to call two energy emergency alerts, the first in five years, but avoided taking more extreme measures.
Referring to the “ERCOT movie, which I find the most interesting movie this summer,” Hall asked the panel he was moderating for their opinion.
Jacob Steubing, director of origination and structuring for solar developer Recurrent Energy, agreed with Hall but said, “I’m still holding out for ‘Joker’ with Joaquin Phoenix. It’s getting good press.”
Turning serious, Steubing said, “I’m a solar guy, so going by the book, we think the market design as it stands is ideal. Solar has performed at least as well as expected, and I think the data backs that up. We’re continuing to see more sophisticated buyers seeking that solar shape. Your exposure in Texas is when it’s hot and sunny, and solar is a pretty good hedge for that.”
Karl Dahlstrom, senior vice president of commercial execution for renewable developer Seventus, said ERCOT’s market is unique, given its 2% “consistent load growth every year.”
“The impressive number of renewable buildup is placing pressure on fossil plants,” he said. “We do think the market is working. We’re happy to see the $9,000[/MWh scarcity] prices happen. The purpose of the $9,000 price was to encourage new generation. It will be some time over the next two years to see if that’s changed investors’ expectations.”
“This summer’s been really good. It’s helped improve the market confidence in EROCT and [the Public Utility Commission’s] management of the market,” said Resmi Surendran, senior director of regulatory policy for Shell Energy. “ERCOT is only taking market actions at the last moment. It’s a good example to show market impact on prices. That has shown the importance of having the right market design.”
“You will get your returns in the energy-only market, but be careful what you wish for, because here we are,” PowerFin Partners CEO Tuan Pham said. “This market is designed as a trader’s market. Traders love volatility, and they’re killing it right now. Grandma’s not going to be paying the $9,000 prices, so who pays? The retailers are supposed to, and they will, but prices will eventually get socialized to all the ratepayers. It’s going to take some time to work through the system to socialize Grandma’s bills, but it’s going to happen.”
Pham said if ERCOT operated a capacity market or more defined market, no longer would “traders make a whole lot of money and walk off with their bonuses and never invest in the transmission grid.”
A capacity market is anathema to many of ERCOT’s participants. “As a solar developer, we’re against that,” Steubing said, echoing similar comments from others on his panel.
Bob Helton, ENGIE’s senior director of regulatory affairs, recoiled when a fellow panelist mentioned a capacity market.
“There are three words you can’t say in Texas: blackouts, capacity market and the wall,” he said in jest. “It’s involuntary load shed, load obligation and life-form barrier.”
On a more serious note, Helton said transmission is the biggest issue in the market, saying renewable energy’s “basis risk” — the spread between futures and physical prices — is “horrendous across Texas.”
“That will be the main barrier,” he said. “It’s hard to find projects. We’ll have to look at things completely out of the box.”
Panel: Not All Proposed Projects Will be Built
A panel discussing the generation buildout and connecting the resources to the system cast doubt on the more than 100 interconnection requests by renewable developers. ERCOT’s August generator interconnection status report lists 62.4 GW of planned solar projects and nearly 36 GW of wind projects among the nearly 112 GW of study requests.
“We’re just simply not going to build out 40 GW of solar in the state,” Pham said. He said it’s “apparent” ERCOT’s interconnection processes, bogged down with too many specious applications, need to change. “It’s also important to think about distinguishing between solar and wind. You have investors still stuck in this paradigm of imposing wind expectations on solar energy. Wind is off peak; solar is on peak.”
Sunil Nair, managing director for Transmission Analytics Consulting, called the amount of solar projects in the queue “ridiculous” and said the “basis differential risk is real, and it’s growing.”
“The large amount in the queue … is going to cause issues,” he said. “How much is built or where. Unfortunately, I don’t think anyone has a crystal ball.
“There are growing levels of basis differential risk and congestion risk,” Nair said. “We’ve heard a lot of talk about scarcity pricing … but people are building out in areas where they are competing with other wind and solar projects for transmission access. But you may not see that $9,000 pricing. If located behind a constraint with wind or solar on the margin, you may be sitting at zero or negative pricing, while everyone else is getting $9,000.”
Kip Fox, president of Electric Transmission Texas, a joint venture between subsidiaries of American Electric Power and Berkshire Hathaway Energy, said the end result is a system that does not have enough transmission.
“We’ve had half a billion in congestion costs so far this year. Half a billion solves a lot of adequacy problems,” he said. “When I hear an appeal for conservation from ERCOT, I see a transmission system that is going to be in trouble. We’re going into a period where there is more risk due to increased load and congestion.”
While energy storage facilities are increasingly being added to the interconnection queue, ERCOT insiders are also seeing growing interest from server farms and Bitcoin mining operations seeking reliable transmission service.
“We’ve had a lot of requests from Bitcoin server farms,” Fox said. “Bitcoin is tired of being in Mongolia or the Siberian peninsula. These facilities take anywhere from 10 to 20 MW of power and would love to be hooked up to a reliable grid.”
“You won’t see 40 GW of server farms [in West Texas]. You have prairie dogs out there,” Pham said, offering a dissenting viewpoint. “People who operate those things would rather live in Austin or Silicon Valley.”
Wind Industry Expects Continued Growth
The summit’s speakers continue to see strong growth in the Texas wind industry. The rush to begin construction on approved projects before the production tax credit falls off after 2020 is a key driver, but so could be the groundwork laid back in the 1990s by former Texas Gov. George W. Bush, which has led to acceptance of the industry’s facilities.
Texas opened its electricity market to competition in 1999, which led to a wave of wind development and the need for additional transmission infrastructure. The Competitive Renewable Energy Zones (CREZ) project was the answer, resulting in the construction of 2,400 miles of high-voltage lines, capable of carrying 18.5 GW of West Texas wind to ERCOT’s major load centers.
“You could almost say George W. Bush was the godfather of Texas transmission lines,” Pattern Energy Group Vice President George Hardie said. “The CREZ lines enabled an extraordinary amount of new wind to be developed. Because Texas wind has done extraordinary things for Texas communities, there’s been very little blowback of visual aesthetics. You’re seeing wind projects going increasingly closer to load centers.”
“This has all the fundamentals of being a great place for wind development,” said Susan Williams Sloan, vice president of state affairs for the American Wind Energy Association. “There’s high load, so there are a lot of customers. There are ample wind resources and market rules that allow the developers or generation owners to connect to the grid and get their power to the market. With a low-cost, competitive market … there’s a whole lot of political support for building and hosting wind farms. We’re seeing a lot more interest in hosting more [renewable resources] because it’s been so good for rural economic development.”
But it’s not all rainbows and unicorns.
Vanessa Tutos, EDP Renewables’ director of government affairs, said there’s no political will for a CREZ II, saying “it’s so much more expensive to build large-scale transmission to serve that cheap generation than it is to use distributed generation.”
“Looking at the economic development that is lost to rural America, renewable energy can be there and help some of the economies,” she said. “The only way to do that is enable access to those markets so we can get these projects developed where they’re needed.”
“You can argue wind has been so successful in Texas, it’s creating some adversities that need to be shaken out,” Hardie said. “We need more transmission, but how conducive is ERCOT to building a new transmission line just to accommodate a 100-MW wind farm in West Texas when there’s already so much wind coming out of there? The CREZ lines have become, in an amazingly short time, all full up. Careful siting and location of wind projects, and where the power is needed, will be the key for the ongoing success of wind.”
Sloan said that while the wind industry may soon be the only form of generation not receiving some form of federal tax subsidy, and without a price on carbon, her stakeholders always find a way to beat expectations.
“If there’s only one technology left competing against other technologies with their incentives and subsidies, and despite the cost of wind coming down 69% over the last nine years, being able to compete against others is going to be tough,” she said. “Since I’ve been in this industry, we’ve beat expectations every way. A technology-neutral tax incentive is something you will see us advocating for.”
Permian Basin Drives ERCOT’s Load Growth
Shannon Caraway, vice president of business development for Solar Prime and a 30-year veteran of the ERCOT market, said that while the grid operator’s 2% annual load growth may be setting the standard, it’s nothing compared to the growth in West Texas’ oil-rich Permian Basin.
“The amount of sheer load growth is just staggering. In my entire career, I can’t remember an area that has grown that fast and worn out a forecast,” he said, noting that peak load in ERCOT’s Far West zone has grown 47% since summer 2017 (2,920 MW to 4,280 MW), accounting for about 27% of ERCOT’s peak load growth.
The growth is fueled by oil and gas production. The Permian Basin is currently producing more than 4.2 million barrels per day, though the rate of growth has slowed in recent months. If the trend continues, it would only mean the load growth slows somewhat.
“As long as oil prices stay above $50 a barrel, production could reach up to six million barrels a day,” said Brian Bartholomew, a U.S. power analyst with BloombergNEF.
The petroleum companies are betting on renewables to help manage their price risk. Exxon Mobil recently procured 250 MW of solar energy in the Permian and 250 MW of wind. Shell is also said to seeking renewable generation. ERCOT’s most recent adequacy report indicated nearly 1,9500 MW of solar energy is already operating in its footprint, with 1,500 MW in West Texas.
“A vast majority of all that West Texas solar sits in the Permian Basin,” Caraway said. “When we came out to the Permian area six years ago, most of the solar development was much farther west, west of Fort Stockton. It had great solar irradiance but almost no transmission. Since then, we’ve seen solar in the Fort Stockton area experience severe congestion.”
— Tom Kleckner
