After several years of the Texas electric grid being overwhelmed by renewable energy, the big news is that natural gas is back in the game. The Public Utility Commission of Texas has received 125 notices of intent that propose over 55,000 megawatts of new generation, most of it gas-fired.
Texans should not be surprised at this turn of events. Generators are simply following the money. Taxpayer money, that is.
After Winter Storm Uri, public pressure forced Texas politicians to wake up to—though not confess to—the damage they had caused by throwing billions of taxpayer dollars at generation that only works when the weather permits. But rather than restoring grid reliability by ending subsidies for wind and solar farms, they started flinging taxpayer money at natural gas and other dispatchable generation.
It is not going to work. The explosion of renewables continues unabated despite the well-known fact that the reliability value of renewable energy declines as its grid penetration increases. Subsidies for new natural gas generation and batteries may serve as a temporary band-aid on ERCOT’s reliability problem, but the only permanent result will be to make electricity more expensive for Texans.
That is already happening. We are more than five years into an effort to make Texans pay more for electricity to improve profits for generators, who have been trying since 2013 to convince policymakers that higher profits for them mean more reliability for the grid. They got their first big payout in 2019 when the PUC made changes to a price adder (ORDC) that artificially increased electricity prices by almost $4 billion. Since then, the ORDC has added another $7 billion to electricity prices.
The PUC struck again when its commissioners irrationally, and perhaps illegally, intervened in the market during Uri to raise electricity prices to $9,000 per MWh; at the time, prices were about $2,400. This cost consumers at least $10 billion. Either Gov. Greg Abbott or the Texas Legislature could have stopped or reversed this, but both failed to act.
Last year was the most expensive yet for Texans. Another PUC market intervention (ECRS) created artificial shortages that caused prices to jump by $12 billion. Then the Texas Legislature created, and Texas voters approved, the Texas Energy Fund using $5 billion of the budget surplus (another $5 billion may be on the way next year). The Energy Fund is what has generators lined up at the PUC’s doors to get billions through low-interest loans, grants, and bonuses.
Add it all up, and politicians have added at least $38 billion to the cost of electricity through higher bills or higher taxes since 2019.
Electricity prices confirm the cost of these measures to Texas businesses and consumers. In the five years before 2019, wholesale electricity prices averaged $31.18 per MWh. Since then, prices averaged $76.14, or $53 removing the effects of the PUC’s actions during Yuri.
Retail prices show the same trend. From 2014-2018, the average price for residential customers was 11.3 cents per kWh. For the last five years, prices have averaged 12.72 cents. The latest data show March prices at 14.92 cents, up 27 percent from 11.71 cents before Uri. Texas politicians have not yet imposed New York (23.64 cents) or California (32.47 cents) prices on their constituents, but they are trying the best they can.
A definition popular in the recovery community is that insanity means continuing to do the same thing while expecting different results. Since 2014, the reliability of the Texas grid has collapsed as federal, state, and local subsidies for renewables averaged $2 billion a year. Over the next five years, subsidies for traditional and renewable subsidies are expected to average at least $6.4 billion.
The first step toward improving the reliability of the Texas grid is for the Texas Legislature to admit that the grid has become unmanageable and making Texans pay more for electricity to increase the profits of generators will not fix the problem. From there, the solution is straightforward.
The legislature must demand that the PUC and ERCOT stop manipulating energy prices. They must end state and local subsidies for all sources of energy. Then they must require renewable energy generators to pay for the costs they are imposing on the grid because of federal subsidies. In other words, they must let competition work in the Texas electricity market.
These measures will restore sanity, reliability, and affordability to the Texas grid. Texans would save billions, and one day would no longer be bombarded by calls to conserve electricity to keep the lights on when the wind stops blowing or the sun stops shining. We just have to take it one step at a time.
This is a commentary published with the author’s permission. If you wish to submit a commentary to Texas Scorecard, please submit your article to submission@texasscorecard.com.
