Energy policy is a hot topic, and it’s effects are real and important.
But while policy can make an impact, market forces and grid behavior more directly dictate the outcome in energy markets like ours in Texas.
Because of this, clean power will lead the way and benefit consumers.
RENEWABLE ENERGY IS THE CHEAPEST FORM OF NEW GENERATION
Over the last few years, wind and solar projects have seen dramatic reductions in cost fueled by manufacturing improvements, technology efficiency gains, and the demand of a global market (like computers in the era post 2000). They also continue to benefit from federal tax incentives like the ITC and PTC.
Today, solar and wind generation have the lowest levelized cost of energy compared to other sources – unsubsidized. Utility solar projects are rapidly approaching a $1/ watt installed cost, a new milestone for the industry.
And, because renewables like wind and solar don’t need purchased fuel from potentially volatile commodity markets, the major cost is up front, meaning inexpensive renewable energy will stay inexpensive over the long term.
Houston energy consumers can directly participate in adding more solar to the grid to drive down the cost of clean electricity by powering their homes with Local Sun.
AN INTRODUCTION TO THE TEXAS GRID
The vast majority of the Texas electrical grid is managed by the Electric Reliability Council of Texas (ERCOT).
ERCOT is tasked with providing the structure and wholesale market that ensures energy demand is met with ample generation capacity and backup reserves. The ERCOT market is also the trading and scheduling home for all power generators, retail providers, and services like demand response.
Because of the fluidity of the ERCOT market, energy prices are based on supply and demand factors and underlying power plant efficiencies with related fuel costs (such as the spot price of natural gas and coal).
The market operates in real time by location, so as capacity is strained in hot summer months in big cities, wholesale prices spike accordingly which naturally encourages more supply from emergency sources and/ or curtailment of load.
The grid has historically relied on large-scale base load natural gas and coal power plants to do the heavy lifting, with less efficient gas and oil “peaker” generators on standby for backup when prices spike and supply is needed.
The advancement and penetration of renewables on the grid has the potential to dramatically change this.
THE CHANGING ROLE OF RENEWABLES ON THE TEXAS GRID
In the past, renewable resources represented a voluntary commitment of forward thinking utilities looking to sustainably hedge against volatility, often symbolic ornaments within a power portfolio.
Today, renewables are setting the price floor for which traditional generators must compete. This is partly based on cost and partly based on functionality.
In ERCOT, renewables currently make up about 11% of the total kWh generated (mostly wind). However, this figure only tells half the story and fails to account for the effects of real-time penetration.
For example, wind recently made up over 50% of the real-time generation on the grid, breaking previous records. Conditions like this usually occur in the middle of the night when demand is low and the wind is blowing, sending wholesale prices into negative territory in some locations.
As more wind and solar come online, such conditions will begin to penetrate periods of higher demand in the daytime and continue to drive down wholesale prices. While the grid has plenty of room to accept more renewables, this wreaks havoc on traditional large-scale, base load generators’ ability to produce power economically.
Because renewables don’t have an associated fuel cost to operate and production is usually contracted, it makes sense for them to generate anytime the sun is shining and wind is blowing, regardless of demand on the grid and wholesale prices. As more cheap renewables come online, they take up more and more of the base load function.
Fossil fuel generators are economical in the market when the cost of fuel and power plant efficiency (known as the heat rate) produce power at or below the going wholesale rate, unless otherwise contracted. Solar and wind can impact their ability to operate.
Here’s a common scenario on a windy day:
- The wholesale market is depressed throughout the state due to the amount of added generation provided by wind.
- Because of high supply and low prices, some base load generators won’t run at capacity.
- When wind drops (because it’s intermittent), prices spike in short increments setting off peaker plants to fill in the gaps.
- Because base load fossil fuel generators take time to ramp up, by the time they are ready to step in…
- The wind has picked back up and prices are back down into territory that prohibits them from operating profitably.
While coal generation has been the victim of low natural gas prices, natural gas base load generators now see potential constraints due to the operational nature of renewables as they flood the grid with cheap power.
Today, most of these changes to the Texas grid have been driven by wind, as solar accounts for only about 1% of total generation. However, this is quickly changing now that solar is the cheapest form of new generation and produces power in the middle of the day when demand is the highest.
As more wind and solar come online, they will begin to compliment each other and further disrupt the traditional order. Luckily, ERCOT is ready and has room for significantly more renewables before running into operational issues that require generation curtailment or energy storage.
Rice University’s Dan Cohan recently penned an excellent piecewarning of the dangers in overhyping the growth of renewables. If you hear it enough times, it’s easy to get complacent and just assume clean energy will take over the grid without personal action.
By joining our community, consumers directly participate in accelerating the transition to more cheaper, cleaner power which benefits everyone. Like rooftop solar, Local Sun provides additionality – more solar on the grid as customers join.