Texas may be a fossil-fuel capital, but wind and solar power have been dominating the growth in electricity generation, and storage batteries are coming on fast.
The momentum for a greener Texas is about to gain even more traction, thanks to a federal climate law enacted this week.
Known as the Inflation Reduction Act, the law features $386 billion in investments in energy and climate change. That includes $161 billion of tax credits related to clean electricity, according to the Committee for a Responsible Federal Budget.
The law extends federal tax credits for wind, solar and batteries for a decade, ending uncertainty over the tax breaks that whipsawed the industry for years. It includes incentives for hydrogen technology, which is still emerging, and for power plants reducing emissions to net zero.
Those breaks, along with new credits for carbon capture, could boost fossil fuels, experts said. The law also expands leasing of federal lands for onshore and offshore drilling.
“This bill is going to spur innovation, creativity and collaboration across energy sectors, and it’s gonna be tremendously valuable for Texas,” said Jeff Clark, president of the Advanced Power Alliance, a group of energy companies and advocates in the wind, solar and battery industries. “More than any other state, we’re uniquely positioned to capitalize on all of it.”
There’s always been some resistance to renewables, including objections to federal tax breaks favoring clean energy over natural gas, coal and nuclear plants. Texas’ elected leaders have embraced wind and solar power for lowering costs, but they blame those producers when they deliver less electricity than expected.
Last year, some Texas leaders proposed that wind and solar providers buy “replacement power” to maintain grid reliability, which was seen as punishing renewables for their variability. On Wednesday, an energy advisory panel recommended a reliability requirement for renewables that could lead to fees like those proposed previously by the governor.
Such actions could raise the cost of developing renewables. But the climate law offers so many incentives for so long that Texas is likely to see even faster growth, said Luke Metzger, executive director of Environment Texas, an advocate for clean energy.
“We have the best resources in the country for renewables, so you can get a bigger bang for your buck by building projects in Texas,” Metzger said. “We just need to allow these incentives to take effect, get out of the way and not mess it up.”
Texas has a competitive power market so investors, not regulators or lawmakers, decide where to place their bets. And they’ve been pouring money into renewables on ERCOT, the grid that handles 90% of Texas’ electric load.
Wind, solar and batteries added a combined 26,000 megawatts of capacity over the past five years, enough potential electricity to power 5.2 million homes during the Texas summer. In contrast, natural gas and coal plants have cut their combined capacity as more older plants have been retired.
The effects are evident in ERCOT’s energy mix. Through July 2022, which includes one of the hottest summers ever, wind and solar power have accounted for nearly 34% of electricity on ERCOT. Eight years ago, their combined share of the market was just under 11%.
Projects in the ERCOT pipeline are heavily weighted toward renewables. Over the next two to three years, projects for solar, wind and batteries would add over 52,000 megawatts if all the planned investments were made. New natural gas plants in the queue would add less than 2,400 megawatts.
“What worries me is the lack of natural gas” coming on to the grid, said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University. “We really don’t have another choice for increasing baseload generation. And we need more dispatchable power.”
Texas regulators are working on a redesign of the state’s competitive electric market — reforms prompted by the deadly freeze in February 2021 that shut down much of the grid for days. At ERCOT and the Public Utility Commission, which oversees the grid operator, redesign discussions have focused on attracting more natural gas plants because they can be flipped on when needed.
Tax credits to promote carbon capture and reduce emissions are part of the new climate law, and they could be a big boost to the oil and gas industry in Texas, Bullock said. Many carbon capture projects are in the works already, including Exxon Mobil’s giant facility planned near Houston, which will include a hydrogen production plant.
Natural gas prices have soared in recent months, driving up the cost of electricity and making it more difficult to attract new gas plants. Investors are also eager to back clean energy projects so if the new tax credits lead to reducing carbon in Texas’ thermal fleet, the industry would benefit
“Anything that makes the economics a little more favorable will help,” Bullock said.
As long as it doesn’t discourage renewables, he added. Texas needs all the electricity it can get, he said, and many customers — from homeowners to big industrials — want to buy clean power.
The savings can be significant because the cost of solar and wind power have fallen sharply. Since 2009, the cost of wind has declined 72% and the cost of utility-scale solar has declined 90%, according to Lazard Ltd. And that’s without subsidies.
With subsidies, the cost of energy with new-build wind and solar projects is competitive with the marginal cost of existing gas and coal plants — and can be lower, the report said.
The cost of electricity surged 47.3% in Dallas-Fort Worth over the past year, according to recent data on inflation. Much of the increase stems from higher natural gas, the fuel setting the price in Texas’ electric market.
The growth in wind and solar helped dampen the impact. The potential savings for all Texans ranged from $10 million to $30 million a day this year, said Mark Dyson, managing director of the carbon-free electricity program at RMI, a nonprofit working to accelerate the clean energy transition.
Residents would have had to pay millions more if the renewables’ share of power had to be covered by plants operating on natural gas, he said.
Homeowners may be able to capitalize on the price differential by adding solar panels. The climate law includes direct-to-consumer incentives for rooftop solar and other efficiency efforts.
“There’s never been a better time in the history of Texas to generate your own solar energy,” said Michael Lee, CEO of Octopus Energy US, an electricity retailer in Houston. “We’re already in a wonderful place, and this bill is going to accelerate it even further.”
His firm allows customers to sell their solar power into the grid and get credits, and they can time the sales to get higher prices.
In July, Octopus customers with rooftop solar were getting paid nearly 30 cents a kilowatt hour for their contributions to the grid, Lee said. That’s over 50% higher than the average cost of power on a one-year residential contract.
The climate law also incentivizes more electric vehicles, another potential way to complement the grid.
“An electric vehicle is a battery on wheels, right? What if that battery can send power back to the grid?” Lee said.
Private investors are betting heavily on storage. Last year, ERCOT had 833 megawatts of power from batteries; by 2024, batteries are projected to grow to nearly 9,000 megawatts, based on what’s in the pipeline. All that was before the climate law.
Lee and others believe investments in storage, along with more distributed solar on rooftops, will make the Texas grid more reliable and affordable.
“We won’t need more natural gas plants,” Lee said. “By the way, natural gas is very expensive.”
