A Call to Action to Texas Renewable Energy Consumers and Investors

A Message from Jeff Clark, President of the Advanced Power Alliance:

Dear Renewable Energy Investors, Developers, and Customers:

Renewable energy is facing legislation that will negatively impact renewable energy investments in Texas. Disturbingly, these bills are not only prospective, affecting the future development of renewable generation in our state, but they also impose new and significant costs on existing projects, project investors, generation customers, and – by devaluing project economics – local communities and schools. 

Today, I urgently want to draw your attention to language that will change the way ancillary services are procured in ERCOT by shifting a portion of the system’s costs from load to renewable generation, not to all generators.

Texas Senate Bill 1278House Bill 4466, and similar language that was inserted by Senate floor amendment into Senate Bill 3 (an omnibus “reform” of our electric system), pose a tremendous threat to the continued operation of renewable energy projects in Texas. The Editorial Board of the Houston Chronicle recently weighed in saying:

“[SB 3] also used a statewide crisis that killed 111 people to take a cheap shot at renewable energy, sticking wind and solar with a fee to seemingly punish them for any drops in generation caused by Mother Nature’s whim. That qualifies for its own editorial but for now, we’ll call it what it is: shameless political opportunism…”

As you know, the electric grid requires ancillary services to maintain stability and reliability. In our market, generators supply power to ERCOT and it is delivered to customers (load). ERCOT procures the ancillary services needed to maintain the frequency, stability, and reliability of the grid. The aggregate cost of those services is shared across all load. 

All generators create some need for ancillary services. Variations in load also create the need for ancillary services. Because of their rapidly varying power usage, some large industrial customers stand out for their ancillary services needs. Additionally, ancillary services are procured as a precautionary measure to be available if a large power supplier, like a nuclear power plant, trips off-line. 

There is a misconception that the variability of renewable energy creates a substantial ancillary services requirement. But, while renewables like wind and solar are variable, they are relatively predictable in the near term. Notably, ancillary services purchases in ERCOT have remained relatively flat, while renewables generation in ERCOT has increased 262% over the last decade.

The fact is that ancillary services in ERCOT currently efficiently and cost-effectively address variability in supply and demand. The ERCOT Independent Market Monitor has found that improvements underway at ERCOT to improve ancillary services will further improve system reliability while delivering substantial reductions in production costs, congestion costs, and energy costs.

While there have been past efforts to assign ancillary services costs to specific market participants, stakeholders have consistently returned to a system that recognizes that these services benefit the entire market and are best shared by all customers. In Texas, this system has been in place for decades. This long-established structure has enabled more than $60 billion of renewable energy investment into the Texas market. At the same time, corporate customers representing some of America’s most influential and impressive commercial and industrial customers have entered into long-term power purchase agreements with pricing based on these established market rules. These proposals upend established market principles and will harm these parties.

We have pointed out to lawmakers in the Texas Senate that these proposals are inherently discriminatory. They impose ancillary services costs on only one form of generation, allowing other power generators and large industrial loads to continue socializing their costs across the customer base. 

While they have pushed these proposals for years, anti-renewables groups are now taking advantage of the February winter crisis to harm the economics of renewable investment to prop up fossil fuel generation. They falsely claim that these changes will help bring more “dispatchable” generation to the ERCOT market and add to the Texas grid’s reliability. This claim is false for several reasons: 

  • Imposing additional costs on renewable generation does nothing to address failures related to the winter storm. ERCOT did not lack enough thermal generation capacity during the winter storms. It lacked enough operating thermal generation. The “dispatchable,” “reliable” power generators Texas relied on were neither dispatchable nor reliable when called upon in February. These failures have many causes including fuel availability issues, none of which are addressed by imposing additional costs on renewable generation. 
  • These proposals undermine a stable market environment for investment by imposing new and significant costs on existing generation assets. Investors in power generation of any kind will be hesitant to invest in a Texas market where discriminatory and unneeded changes in market rules place $60 billion of capital investment at risk. The financial stability and integrity of the ERCOT market have already been severely tested in 2021. Legislative action to target one group of generators, investors, and customers will be counterproductive and further harm the state’s business reputation.

Make no mistake, these changes will not benefit Texas consumers, they will not increase reliability, and they will not address any systemic shortcomings identified in our recent crisis. These proposals have been pursued for years to give commercial advantage to one set of generators. They harm existing projects and investors, and they impact the large number of commercial and industrial customers who have purchased the power from these projects.

We need your help. Time is of the essence as House Bill 4466 will be heard by the House State Affairs Committee on April 8; Senate Bill 1278 has been passed out of the Senate Business and Commerce Committee and will soon go to the full Senate for discussion; and Senate Bill 3 (as amended with this harmful language) has passed the Senate and is headed to the Texas House of Representatives. Lawmakers should reject HB 4466, SB 1278, and the changes found in SB 3. They should be aware of the dangers posed by this language to Texas business reputation and remain alert as anti-renewables groups will continue to seek to amend this into legislation until the final days of the legislative session. 

Because of your commitment to the growth of cleaner, cheaper, renewable energy resources, we urge you to contact the Texas Legislature today and make your concerns known. We are available as a resource, and we are very appreciative of your help.