Today, Texas only has 200 MW of solar capacity, less than New Jersey, Massachusetts, and a handful of other states.
Everything is Bigger in Texas - or not:
The State of the Texas Solar and Electricity Markets
Lionel Johnnes | Circular Energy and Texas Solar Energy Society
Texas leads the U.S. in energy production, accounting for a whopping 18% of our nation’s total. This is, in large part, due to a robust oil & gas industry. Texas also stakes a claim to both the most wind power capacity and electricity (kwh) generation in America.
Solar panels now offer an economical source of electricity, and many Americans are advocating for the increased use of energy produced by the sun. Given that our state already produces a substantial amount of electricity (50% more than the 2nd-ranked state, Florida) does Texas truly have a need for more electricity generation, and specifically, more solar energy?
Does Texas need more electric generation capacity?
In a word, yes.
Retail electricity prices are rising statewide, influenced by supply and demand. Demand has increased with the population boom that Texas is experiencing and the coincident rising average standard of living (and thus, electricity consumption), but available capacity has been limited, largely due to economics (explained below) and partly due to regulation (expected to continue with the new EPA guidelines). Yet, the big problem that Texas faces is the ability to reliably provide affordable electricity during periods of high demand.
What happens during periods of high demand?
In capacity markets, power companies are compensated for additional generation assets, ensuring greater market reliability (for an embedded cost, of course). Although building a power plant is an expensive endeavor, guaranteed returns make for a safer investment.
In an energy-only market, like Texas, power companies are only paid for the electricity they sell, meaning there is currently no guaranteed rate of return on investing in new capacity. ERCOT, the Electricity Reliability Council of Texas, strives to maintain a 13.75% reserve margin of generating capacity, which is intended to serve as a buffer against rolling blackouts during periods of peak demand. This target reserve margin is lower than the 15.25% margin recommended by The Brattle Group and is currently forecasted to fall below 10% this year. ERCOT has repeatedly expressed concern about the existing capacity shortage and resulting possibility of rolling blackouts. This explains the foundation for Problem #1 – Reliability.
Problem #2: Pricing
Energy-only market pricing is explained well by Bentham Paulos: “Power companies bid into the market every hour, and their bids are ranked (by price) from lowest to highest (called the “merit order”). The market operator (ERCOT in Texas) accepts all the bids up to the cumulative amount of energy needed to meet demand, then all of the accepted bidders get paid the price of that last (highest) bidder (called the “market-clearing price”).”
During periods of extreme demand, the market-clearing price is driven way up by high-cost sources of power, such as “peaker plants” that must recoup their entire annual cost (including maintenance and operation) during these unpredictable occasions of high demand. This explains why “the average annual electricity cost per Texas household is $1,801, among the highest in the nation,” (U.S. EIA) despite the fact that Texas’ average residential electric rates are relatively low at just under 12 cents/kWh (29th in the U.S.).
How does solar offer a solution?
Contrary to peaker plants, solar PV and wind produce power year-round at a low operating cost, so they routinely offer the lowest-priced bids and are therefore nearly guaranteed to receive the market-clearing price. Therefore, adding low-cost solar to the capacity market should decrease peak prices. But, is this true?
As reported by Nathanial Gronewold from E&E: “At the behest of the Solar Energy Industries Association (SEIA), Brattle Group analysts conducted a study to determine what Texas' power market would have looked like last summer had the state hosted higher levels of solar photovoltaic (PV) generation. […] Based on their calculations, analysts concluded that the additional benefit to ERCOT customers had Texas held 1,000 megawatts of solar PV would have come to $333 per megawatt-hour, or $167.9 million total. About 5,000 MW worth of capacity would have contributed to a net savings of $206 per megawatt-hour, but a total benefit of $520.3 million.” Those are savings that would have been captured by Texas electricity consumers and would materially reduce the “average annual electricity cost per Texas household” that is currently high.
And if the base-load benefits are not enough, there are two additional positive aspects that solar provides:
- Solar panels can be oriented to produce the greatest amount of electricity during times of peak load/demand, mitigating peak pricing effects.
- Rooftop solar provides a predictable, low-risk, and high-return investment to homeowners and businesses that make the decision to turn their rooftops into a power plant. The beneficiaries gain more stability over their energy costs from:
- Decreased reliance on fluctuating and volatile retail electricity prices;
- A payback on their electricity where there otherwise would be none; and
- Reduced living/operating costs.
Today, Texas only has 200 MW of solar capacity, less than New Jersey, Massachusetts, and a handful of other states. This total capacity is expected to grow to over 1,000 MW by 2017, but that is still a far cry away from how much solar energy Texas needs. For a state that holds 20% of our country’s total solar potential and offers the lowest median price for installed solar (as of August 2013), there is plenty of opportunity for solar energy in Texas.
What does this mean for you?
Solar panels can reduce your electric bill indirectly through the electricity market, in addition to reducing your monthly utility bills.
- Consider solar for your home. Find a trustworthy solar company to help you add capacity to the grid and save money at the same time.
- Join TXSES and contribute to our efforts to educate the public about solar.
- Share this article or tell a friend about how solar can materially impact their electric bills.
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