Over the past century, the electric grid in the United States has experienced only minor changes. There is evidence, however, the power sector is changing. We are moving away from traditional coal generation and toward alternative, cleaner energy sources. And despite our state being primarily known for oil and gas, Texas is no exception.
In fact, Texas’ electricity sector has been trending cleaner over the past decades, driven by deregulation of the electricity market, the development of the massive highway of transmission lines built to carry West Texas wind to cities throughout the state — the Competitive Renewable Energy Zone (CREZ), and technological progress. Basically, once the market was opened up to competition, the more economic options — which also happen to be cleaner — began to gain a foothold. And there’s no stopping this train.
Where We Are and Where We’re Going
To start, the declining use of fossil fuels to power our lives is perhaps the most significant change in Texas. As shown in Figure 1 below, fossil fuels’ (coal and gas’) proportion of the state’s electricity generation mix shrunk from 88 percent in 2002 to 82 percent in 2013.
Meanwhile, renewable energy was taking its place – wind’s share grew from one percent to eight percent.
Not only is fossil fuels’ slice of the generation mix on the decline, we are using cleaner fossil fuels in place of coal. Natural gas generation has grown substantially more than coal generation in the state since 1990, even before deregulation. During this stretch, coal’s percentage of Texas’ generation mix has steadily declined from about 45 percent to 35 percent, while natural gas’ has remained between 45 percent and 50 percent.
Energy forecasters predict this trend toward cleaner power will intensify. The business as usual (BAU), or “Current Trends,” scenario – the best forecast for what the future could hold under the current economic and policy landscape– from the Electric Reliability Council of Texas (ERCOT), the state’s grid operator, projects wind generation capacity will double the 2013 total by 2017. Even more ambitious, SNL Financial’s wind capacity projection — based on “actual planned/under construction projects” — for 2020 is nearly three times the 2013 total.
Further, Texas has barely begun to scratch the surface of our solar potential. ERCOT’s BAU forecast is for the state’s solar capacity to increase to upwards of 10GW by 2029, making solar power’s share of the state’s generation mix six percent, up from zero percent in 2013. That’s a big jump.
With regard to fossil fuels, ERCOT’s BAU scenario predicts zero additional coal capacity and 8.6 GW of additional natural gas capacity by 2024. Not only will there not be any new coal coming online, SNL Financial forecasts coal generation capacity dropping by 2020, while natural gas capacity increases significantly during that timeframe.
In sum, renewable energy and natural gas are increasingly powering Texas, while the use of coal is on the decline.
Why Is This Trend Toward Cleaner Power Sources Occurring?
Lower prices and technological progress for renewables and natural gas – under a deregulated market structure and in parallel with the construction of CREZ transmission lines — have improved the economic context for cleaner fuel sources, making the electric market in Texas ripe for clean energy.
Prior to deregulation, the regulatory framework guaranteed conventional utilities the economic right to recover costs with a reasonable profit. For example, if a utility needed to fix broken equipment, they could then structure their rates in such a way to recoup those costs plus a reasonable rate of return, subject to the approval of the Public Utilities Commission. There was no real incentive to retire inefficient resources. Deregulation, on the other hand, created the opportunity for more retail electricity providers to enter the state and compete with one another, forcing inefficient resources to give way to more cost-efficient options.
And which resources have been winning under this competitive environment? Natural gas and renewables — especially wind — so far. This is largely due to the continued construction of CREZ lines over the past decade, which will eventually enable 18.5 GW of wind capacity, or over 30 percent of all 2012 onshore wind capacity in the entire United States. This competitive environment has fostered the upspring of five of the world’s 15 largest wind farms right here in Texas.
In addition to CREZ infrastructure, technological progress and related decreases in costs have improved clean power’s ability to compete in Texas. Lazard’s levelized cost of energy (LCOE) — the most commonly used metric for comparing cost competitiveness of fuel sources — for solar and wind power dropped 78 percent and 58 percent, respectively during 2009-2014. To put these cost reductions in perspective, imagine if your cable bill dropped 58 percent with no strings attached: instead of paying $50 per month, you’d be looking at a price tag of $21 per month.
As with renewables, prices for natural gas have also declined — largely due to the breakthrough of fracking — over recent years. Energy Information Administration (EIA) data show natural gas prices were more or less cut in half during 2008-2014.
Notably, since 2009, as wind and gas’ proportion of the Texas generation mix have become more significant, wholesale electricity prices in Texas have plummeted. Cleaner energy and lower electricity bills can go hand in hand.
And this trend toward cleaner, more affordable power should continue in Texas. One reason? Bloomberg New Energy Finance forecasts energy from wind and solar becoming even more competitive with coal and natural gas in future years. In fact, as the generation costs of coal and natural gas continue to rise, those of wind and solar are predicted to keep going down.
As prices for renewables decline, Texas stands to benefit more than any other state. According to National Renewable Energy Laboratory, Texas is by far the most resource-rich state in the country for wind and solar energy. Specifically, our state has twice the potential for wind and three times the potential for solar than the second place state for each category.
Even in Texas — a state famous for its oil and gas — our own grid operator, ERCOT, entitled its clean power section of its annual report “Connecting tomorrow’s resources to today’s grid.” Anyone that has been to West Texas has felt the state’s abundance of wind, and the sun shines year-round. That’s excellent news for us because the primary reason for Texas transitioning toward cleaner electricity generation — or “tomorrow’s resources,” in the words of ERCOT — is simple economics.
In anticipation of the Environmental Protection Agency’s Clean Power Plan being finalized, Environmental Defense Fund will be releasing a policy paper demonstrating how Texas is well-positioned to comply with the upcoming rules.
This article was originally published on EDF and was republished with permission.