The Market-Driven Path to Renewables

texas_wind_turbines

Texas wind turbines. Photo credit: Wall Street Journal

by James A. Bacon

Texas, one of the most conservative states in the country, is not exactly what you’d call a hotbed of environmental activism. Yet the Lone Star state has added more wind-based generating capacity than any other; wind turbines and other renewables account for 16% of electrical generating capacity — and as much as half of electricity production at night. Now the state is anticipating a surge in solar power, reports the Wall Street Journal.

Moreover, Texas, long associated with the oil & gas industry, has become a pace-setter in renewable energy while moving from an average retail electricity rate higher than the national average to a rate below the national average — 8.6 cents per kilowatt hour compared to 10.4 cents nationally.

Oh, and it did so within the context of a free-market-based electricity system — no  state subsidies. (Federal subsidies still apply.)

“Texas officials didn’t invoke global warming to sell the program,” writes the Journal. “They touted renewable energy as a consumer-choice issue, jobs producer and a way to pump money into rural economies.”

Consumer choice: Residents of Houston can pick from 107 rate plans offering 5% to 100% renewable power. Reliant, a unit of NRG Energy Inc., charges 7.1 cents per kilowatt-hour for an all-renewable plan compared to 5.9 cents for one that’s 5% green.

Jobs: The Texas Workforce Commission estimates that the state now has more than 100,000 people working in renewable energy, which includes manufacturing, construction and ongoing operations. Construction of wind turbines and power lines  created jobs in rural counties and gave landowners new sources of income.

How did this transformation occur? The Journal doesn’t delve into details, but here are the highlights. In 1999 then-Governor George W. Bush signed legislation overhauling the Texas power market. Deregulation broke the grip of monopoly utilities that controlled generation, transmission and retail sales of electricity and introduced competitive auctions for wholesale power. Texas also mandated at least 2,000 megawatts of renewable generating capacity by 2009, not an idea inspired by free market principles, but the mandate wasn’t a major factor. Texas blew past that goal by 2005.

State government also charged electric-system users billions of dollars to build transmission lines to wheel power from windy west Texas where the wind turbines were to urban centers where the demand resided.

The Journal article doesn’t address the issue of service reliability, other than to note that Texas officials are “obsessive” about anticipating changes in the weather that might affect wind-powered production.

Bacon’s bottom line: It would be a mistake to portray the Texas approach as purely market driven. The state did enact mandates (although they apparently were not decisive) and it did dun ratepayers to upgrade transmission lines. But the deregulation of retail allowed Texas greenies to exercise their consumer power by purchasing renewables at a modest premium. And the development of wholesale electricity auctions ensured that new wind and solar producers had someone to sell to.

The big question for Virginians is whether the Texas model can be replicated here, and I’m just not sure of the answer. Some of the necessary elements are in place. For example, Virginia does participate in wholesale electricity markets; we’re part of PJM Interconnection, a cooperative zone of a dozen states in the Midwest and Mid-Atlantic. On the other hand, building transmission lines is exceedingly contentious. It’s one thing to install high-voltage towers in empty Texas ranchland; it’s quite another to build them in a Virginia countryside rich in historical, cultural and environmental resources where landowners value the land not only for its productive capacity but for its viewsheds.

Virginia also experimented with retail deregulation, which was deemed a failure. But it’s been a decade since re-regulation, and times have changed. Thanks to the success of retail deregulation in places like Texas, there are enterprises with proven business models that might make retail competition more meaningful here in Virginia.

Finally, there are important climatic differences between Texas and Virginia. With its vast, windy plains, Texas is superbly suited to on-shore wind. Except along isolated mountain ridges, Virginia is not. While the Old Dominion potentially could tap off-shore wind, the business infrastructure to support it does not exist. As for solar, Texas is an arid state where solar panels get more direct sunlight than in Virginia.

Still, while politically “blue” states from California to New York give extensive thought to what the electric grid of the future will look like, Virginia needs to do so as well. Texas’  market-oriented model might be one that Virginians are more comfortable with.

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13 responses to “The Market-Driven Path to Renewables

  1. well…. not so much just west Texas

  2. Texas is it’s own Regional Transmission Organization – so the state controls things Virginia can’t control as a member of PJM.

    Virginia did not separate generation from transmission and distribution – our utilities own the generation and it’s all but impossible for anyone to compete with them. This was done to protect us. Supposedly our 2007 law gives us the best of competition and regulation. It gives that to Dominion since it has control. Consumers got a bad deal compared with other states. Rates are low, but could be lower.

    We’ve been told over and over in Virginia that if we had a mandatory renewable standard, investors would be able to attract money they can’t get with a voluntary one.

    Further, have you noticed how when someone does manage to figure out a way to put in some renewable resource Dominion promptly buys them? Dominion doesn’t want homeowners to have rooftop solar. It wants complete control. It’s so big and controls so much that competitors have no chance.

    Until things change, little will happen in Virginia beyond what Dominion wants and allows.

  3. I would think that high voltage towers are a better solution than destroying our land by putting in a 42″pipeline throughout our beautiful blue ridge mountains and in people’s farms and backyards . At least with the high voltage towers, you can put them in existing rights of ways!

    • I don’t know, Aurelia. Ask people who have transmission lines run through their property. They are not happy campers either. Nobody wants either pipelines or transmission lines on their property, and who can blame them? The question is whether there is a pressing public necessity for the infrastructure. That’s where the rubber meets the road. In theory a decentralized, distributed grid based on renewables requires less supporting infrastructure like pipelines and transmission lines. But then you get a different set of issues. Wind and solar gobble up a lot of land. Mountain people don’t like wind turbines, and hoteliers in Virginia Beach don’t like off-shore turbines. Where does it end?

      • there is no good reason to put as many new location pipelines as planned.

        there are existing rights of ways for both pipelines and transmission lines and why not put new power plants on existing pipeline rights-of-ways instead of new rights-of-ways?

        the current plans are just not justified and Dominion seems totally not inclined to re-think what they’ve proposed

        I keep pointing out that the Rockies Express Pipeline 1,352 miles of right of way for a 42” welded steel natural gas pipeline – 4,843 tracts with more than 6,500 individual owners with
        nearly 100% voluntary acquisition. For REX West, voluntary
        acquisition was 99.7% successful.

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        contrast this with Dominion’s behavior.

    • Just an observation: you have fossil energy in one place, and the energy consumption in another; that give you three options: 1. move the fossil fuel to where it’s consumed; 2. convert it to electricity and move the electricity to where it’s consumed; or 3. move the energy consumption to where the fuel is. All three work in the long run; and we probably need a broad mix of all three to minimize the risks of overdependence upon any one of these solutions.

      As to the narrow choice between moving gas versus moving electricity, there is a security risk from placing too many energy transmission assets of any kind in a single corridor. On the other hand, there is undeniable aesthetic harm from the destruction of numerous wide strips of forest through the mountains to bury multiple pipelines. The harm from burying pipelines under farmland, however, is more debatable.

  4. I am happy to see that…at one time Texas had plans to build many new coal fired and nuclear power plants. Texas still has a problem meeting proposed Clean Power Plan targets, because the CPP targets seem almost impossible for them to meet.

    On shore wind is a very cost-competitive energy source especially with subsidies. But Virginia is simply not endowed with on-shore wind resources like Texas. Part of the pro-argument for renewables is job creation…but for Virginia, we’d probably have to buy wind energy from out-of-state.

    • I agree with your conclusion for now, TB, but I think within 10 years, once the low-hanging-renewables-fruit are picked, Virginia’s off-shore resources will come under renewed development pressure and we’ll have to deal with both the TX-style need for new transmission lines (down the Delmarva and across the Bay to the Eastern Shore) and NIMBY resistance to the new lines and to the turbines themselves (especially Chincoteague and south of Hampton Roads). Meanwhile Dominion’s experimental “learning” offshore unit should have gone ahead: they (and everyone else) have a lot to learn about how to structure and support offshore wind development.

  5. There’s one statement above I have to disagree with strongly: VaC says, “Virginia did not separate generation from transmission and distribution – our utilities own the generation and it’s all but impossible for anyone to compete with them.” Absolutely not! The PJM wholesale energy and capacity markets cover an area that extends from Michigan to Cape Hatteras; Virginia is a small piece of that. Anyone capable of generating power — all the way from homeowners with solar panels to large independently-owned “merchant” fossil-fueled plants — by federal law can connect to the grid and sell into those wholesale markets. The traditional utilities sell into those same markets; and they buy back the commingled power out of those markets, from all those sources, to deliver to their own retail and wholesale customers.

    Why Virginia’s traditional utilities chose to remain in the generation and the transmission and the districution/retail sales businesses was a financial matter, but they are, indeed, three separate businesses today, regulated separately, with financial results reported separately. They may still own, but they do not operate or plan, the transmission grid any longer; PJM does that. And at least in the generation sector, there are many independently-owned participants in PJM — plus, the traditional utilities themselves are active competitors with each other in that sector.

    As for transmission expansion, the situation in Texas was unusual but we can learn from it. LarryG’s excellent graphic above shows how concentrated the wind-farm development has been in Texas. As Jim said, this was a source of significant employment in some of the least-developed, least-advanced-economically, parts of the State, so it became highly desirable politically to promote the construction of those new transmission lines required to deliver all that wind power to the urban centers in eastern Texas. And Texas does have its own ISO or “independent system operator” and, with one-State licensing, Texas could ensure that the ISO planned all the new transmission to make that possible and that it all got licensed and built as fast as possible. But, importantly, the underlying economic justification was there all along: wind power was cheaper than the older fossil units — often coal or oil — could deliver, even in Texas, and competitive even with newer gas units because of the extraordinary windiness of the west Texas plains.

    We have to make the case for wind power and for solar power in Virginia on economic grounds, too. The economics is not as good here as in Texas; but there are some locations where both make sense. And, lack of transmission is not a major impediment here; we already have enough transmission lines for the time being — in part, because there is no comparable concentration of renewable resources in parts of Virginia where there is no nearby transmission, and in part because there is a little more wind and/or sun available elsewhere in the PJM region for the same investment. A return to full “retail access” in Virginia and a State tax incentive to attract solar investment would both help the situation, but renewables can and will be built (even by independents) in Virginia without those inducements.

  6. I guess I would have thought gas would also be a big player in Texas…much more than coal or oil.. no? And no nukes, right?

  7. In cost estimating, jobs do not count as a benefit.

    If two processes produce the same result, the one with more jobs is less efficient.

  8. here’s a simple question
    how many windmills will it take to power Richmond and where do you put them?
    how many windmills would it take to run Norfolk’s cho cho–or the METRO in northern Virginia
    then—what will be the cost to the consumer?
    after the building of those sights, what jobs will be necessary to operate them, because those are the only real jobs created by them,–& at what cost?–to those that don’t get to use any of it?
    I know your response will be—we need to save the planet–or–every bit helps–or look at what is happening to our planet–but the best will be that say–we all will suffer if we don’t do something
    think people–a hundred years ago–coal powered almost everything—yet the world survived, and prospered–we didn’t choke to death with the bad air
    I’m more concerned with the world using our oceans as a dump—dumping everything into to it every single day of the week–using it as toilets, landfills
    for hundreds of years without any real public outcry———-why?
    because no rich people can make another buck, cleaning our ocean–not like they make with clean energy, green energy, solar energy, windmills

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