CERAWEEK: Texas reforms good so far, but caution favored to keep 'Texas miracle'

Texas has made substantial progress in improving grid reliability since the deadly mid-February winter storm left about 4 million customers without power, some for days, but regulators must move judiciously regarding a second phase of market reforms to ensure the "Texas miracle" continues, CERAWeek panelists said March 9.

During a CERAWeek by S&P Global conference panel discussion entitled "Repowering Texas' Energy Future," Lori Cobos, a member of the Public Utility Commission of Texas, listed several reforms already implemented in the wake of the storm that constitute Phase I of a "blueprint" for market reform designed to enhance reliability, including:

• Deploying Emergency Response Service, comprising demand response or distributed energy resources compensated for reducing grid load, before Energy Emergency Alerts are declared
• Adjusting the Operating Reserve Demand Curve, a system which administratively increases wholesale power prices as reserves approach scarcity levels, such that real-time prices are higher more frequently, thereby incentivizing investment in new and existing resources
• Mandating the weatherization of Electric Reliability Council of Texas' generation fleet ahead of the winter of 2021-22
• Enhancing gas-electric system coordination
• Establishing the Texas Energy Reliability Council
• Facilitating demand-response resources' participation in ERCOT Non-Spin Reserve Service, a type of ancillary service
• Initiating the process of identifying gas infrastructure necessary to supply gas-fired generation
• Approving the establishment of a new ancillary service requiring firm fuel supply before the winter of 2022-23

ERCOT has also been operating the grid "on a more conservative basis, Cobos said, to ensure sufficient reserves are on hand at all times, but especially when weather or demand forecasts are more uncertain.

The PUC has also started the process of hiring a consultant, Cobos said, to advise regarding Phase II of the blueprint, which includes possibly requiring load-serving entities – e.g., electric utilities, retail electric providers – to procure sufficient capacity to cover forecast load over some future period.

Another longer-term proposal that may be implemented in Phase II would be establishing a "backstop requirement" for load-serving entities to procure sufficient dispatchable generation to cover forecast potential shortfalls in renewable output over the short term, such as a month or season.

A third possibility is establishing a Dispatchable Energy Credit system, in which LSEs would have to procure a quantity of dispatchable energy over a certain period, to incentivize investment in new or existing generation.

When the PUC receives a report on these Phase II proposals, it will evaluate the alternatives on the basis of reliability versus cost and impact on consumers, Cobos said.'

Paradigm shifting

"We are experiencing issues that are being experienced throughout the country and the world here in Texas, and even more so, since everything is bigger in Texas, right?" Cobos said. "Texas is continuing to experience a tremendous amount of population and economic growth [with] a growing population of 30 million. We have the ninth-largest economy in the world. People are moving here. Businesses are moving here. Our state's appetite for electricity ... is increasing."

Meanwhile, the Lone Star State's generation fleet is transforming to incorporate increasing levels of renewable generation, Cobos noted. In 2021, ERCOT reported that the wind and solar fleet provided 28.3% of its energy, second only to the gas fleet's 41.9%. Texas leads the nation in wind capacity and has the second-largest solar fleet, after California, and both of those categories continue to grow, Cobos said.

ERCOT's battery storage capacity is growing fast, also, with 1.5 GW installed as of the end of February, possibly growing to 2.9 GW by the end of 2022, based on capacity in the generation interconnection queue that has interconnection agreements and financial security posted.

"Customers want renewable generation," Cobos said. "We have a lot of large commercial and industrial consumers that want these technologies to meet corporate sustainability goals."

In contrast, ERCOT has about 78 GW of thermal generation that is "under pressure from potential federal activity," Cobos said, and that fleet is "working harder to meet electricity demand."

"We feel very good that real positive change has occurred, and we're in a far better place than we would have been otherwise," said Calpine President and CEO Thad Hill, another panelist.

'Texas Miracle'

Over the past 20 years, ERCOT has had investment in about 100 GW of new generation and about 30 GW has retired, while power prices are "extremely competitive," which Hill indicates the ERCOT power market is "very healthy."

"This really underpinning in a lot of ways the 'Texas Miracle,'" Hill said.

The "Texas Miracle" refers to the state's persistent growth during periods, such as the 2008-9 recession, in which much of the US economy experienced significant economic stagnation or shrinkage.

Pat Wood, Hunt Energy Network CEO and former Federal Energy Regulatory Commission chairman, said, "The people have been voting with their money." Large energy consumers, such as cryptocurrency miners, Tesla and Samsung, have been relocating to Texas for its access to inexpensive, clean energy.

Market reforms accomplished so far indicate "there is no crisis," Hill said, so the state "can take a step back" to evaluate how it should proceed.

However, Wood said that in the near future, the ERCOT energy market would likely clear near zero 80% of the time.

"The other 20% of the year, it will be spiking and volatile as hell," Wood said.