Why Texans are Paying More for Less Reliable Electricity

Problems with generation adequacy in Texas were once rare occurrences. But no more.

As everyone knows, Texas had the worst blackout in its history during the winter of 2021, when 10 million Texans went without power and 12 million without water. After the Texas Legislature passed a number of bills in response, Texas Gov. Greg Abbott proclaimed, “Bottom line is that everything that needed to be done was done to fix the power grid in Texas.”

At least until this summer, that is, when in May electricity prices skyrocketed in response to generation shortages as the state’s grid regulator ERCOT (Electric Reliability Council of Texas) asked Texans “to conserve power when they can by setting their thermostats to 78-degrees or above and avoiding the usage of large appliances (such as dishwashers, washers and dryers).” Then in July, ERCOT again warned Texans several times to conserve energy as generating reserves tightened.

While Texas politicians may not have done much to improve the reliability of our electric grid, they have done a great job of increasing the cost of electricity. And unless they stop politicizing management of the Texas electric grid, prices will continue to increase as reliability continues to decline.

Of course, making electricity more expensive is nothing new to Texas politicians. Since 2006, they have partnered with the politicians in Washington D.C. to give more than $26 billion of taxpayer money and other benefits to renewable generators operating in Texas. About $12 billion of that came from the federal government, $10 billion from the state, and $1.5 billion from local government.

Unsurprisingly, the incentives worked. Generators have invested about $66 billion in renewable generation in Texas. In recent years, renewables have dwarfed investment in reliable generation; wind and solar generation have made up 85 percent of new generation since 2018.

The effects of the subsidies are easy to see. Through May, renewables provided the largest share of electricity (37%; wind 32% and solar 5%). Dispatchable sources shares are falling. Natural gas has dropped to 34%, coal to 18%, and nuclear to 11%. A complete reversal of where Texas stood in 2007 when renewables were starting to come online. This heavy reliance on intermittent generation is why the Texas grid is facing reliability problems today.

Yet rather than deal with the problem of renewables by eliminating renewable subsidies, Texas politicians are just throwing our money at the market.

One example of this is through manipulating the price of electricity through a mechanism known as the Operating Reserve Demand Curve. This was first introduced at the Public Utility Commission of Texas about a decade. In 2019, it increased wholesale electricity prices in ERCOT by $3 billion.

In the aftermath of the 2021 blackouts, politicians and regulators have doubled down on the ORDC and other mechanisms for manipulating market prices. And for increasing electricity costs for Texans. Changes made to the ORDC in January boosted prices by $490 million through May. Along with “price adders,” the ORDC is expected to cost Texans $2 billion this year.

On top of that, there is the massive debt caused by the PUC’s arbitrary decision to raise electricity prices to $9,000 per megawatt hour during the blackouts. Rather than reverse the PUC’s action, which added somewhere between $16 to $32 billion to energy costs, the Texas Legislature allowed companies to securitize the debt, which will be added to our electricity bills over the next 20 years or so.

On top of this, the PUC is currently considering a proposal from generators that would establish a market that would pay generators even more money. This “capacity market” would require ERCOT to project whether there is sufficient generation to satisfy to meet a new reliability standard. If the projections fall short, generators will receive more subsidies on the off chance they might increase reserves.  This system would guarantee generators an estimated $1.5 billion extra a year.

The solution to keeping the lights on in Texas is not to throw an extra $3 to $5 billion a year at generators. Rather, it is to stop politicians and regulators from micromanaging the Texas energy market. It is the market’s job, not theirs, to generate electricity.  

Texas politicians could do this by ending renewable energy subsidies in Texas and making renewable companies pay for the costs they impose on the rest of us because they take federal subsidies. But our leaders refuse to acknowledge this solution. As recently as March, Gov. Abbott told a group with the U.S. Chamber of Commerce “You can have fossil fuels while at the very same time be leaders in renewable energy.”

Texans can have an ample supply of reliable and affordable electricity if our politicians will get out of the way and let the Texas energy market do its job.