Will the Texas Renewable Energy Gravy Train Ever Stop?

Wind has dominated Texas’ renewable energy landscape for the last 20 years. However, solar is making a concerted effort to catch up. Utility-scale solar capacity almost doubled in 2020, topping 8,000 gigawatt hours. 

Texas, which already leads the nation in wind capacity, is moving up the ranks of U.S. states in terms in solar capacity. According to the Solar Energy Industries Association, Texas ranked third in 2019, with enough generation installed on solar farms to power 642,199 homes (abstracting from solar’s intermittency).

Favorable press releases are one thing. The loss to real-world homeowners, consumers, and state appropriators in this substitution of dilute, intermittent generation is quite another.

Federal and State Subsidies = Artificial Boom

Solar power and wind power are cheapened by the federal Business Energy Investment Tax Credit (ITC) and the Renewable Energy Production Tax Credit (PTC), respectively. So much so that the otherwise uneconomic appears to be competitive thanks to national of taxpayers. Solar’s ITC stands at 26 percent. (For a plethora of other government renewable energy programs, see here.)

State and local tax preferences add tax favor to tax favor. Abatements are granted through Chapters 312 (counties and cities) and 313 (school districts) of the Texas Tax Code. Last session, the Texas Legislature renewed Chapter 312 to keep those subsidies alive. In 2021, it will have to decide if it is going to give away more taxpayer money by renewing Chapter 313. I estimate this benefit at about 0.4 cents per kWh, adding to the federal ITC of at least one cent per kWh.

The Energy Alliance, a Texas-based consumer organization, estimates that Texas wind and solar farms last year received property tax abatements of almost $42 million through Chapter 312 and $181 million through Chapter 313. Though only about 10% of the $2.4 billion in federal, state, and local subsidies received by these entities in 2020, the abatements can play a significant role in their decisions to locate in Texas–and contribute to their ability to undercut prices of dense, firm power generators that keep the grid stable. 

2021 Legislation in Texas

Two bills have already been filed to extend the 313 program another 10 years. To the casual observer, the decision may seem to be a done deal. Perhaps the biggest champion of granting property tax abatements to big corporations–Rep. James Murphy, was recently named as head of the Texas GOP House caucus. His bill to extend Chapter 312 sailed through the Legislature last session. All attempts to rein in the abatements in the House and Senate were defeated along the way.

However, renewing Chapter 313 may prove to be more challenging. Homeowners across the state are growing more agitated–and politically active–because these handouts for wind and solar farms affect their quality of life, lower their property values, and increase their property taxes.

Additionally, these special tax breaks for big companies rolling out wind and solar farms have led to renewables flooding the Texas electric grid–except when their electricity is really needed. This imposes a heavy cost on Texas consumers who get stuck with higher electricity bills to pay for the increased unreliability of the Texas grid caused by increased reliance on wind and solar. Legislators have already shown concern over this; last session, one-third of the Texas Senate voted to end 312 abatements for renewable projects–including Jane Nelson, chair of the Senate Finance committee.

Senator Nelson and her colleagues on Senate Finance and House Appropriations have another reason to be concerned about the Chapter 313 abatements. Unlike 312 abatements provided by cities and counties, the abatements offered by school districts under 313 cost the state money because of the state’s school finance funding formula. 

School districts, in fact, have gotten very good at milking these deals to maximize their profits at the expense of state revenue. Not only does the state make up for any money lost under these abatements, but school districts actually take payments on the side from businesses to further enhance their revenue stream. Texas lawmakers are likely to be particularly focused on the fiscal effects to the state of these shenanigans this session. 

Highlighting this is the recent announcement by Texas Comptroller Glenn Hegar that the Texas Legislature will have less general revenue to spend this session than in the current budget. Appropriators are going to be eyeing every dollar of revenue. And they know that reduced income from future tax abatements will reduce their ability to meet the budget challenges they face.

Put it all together, and the concerns of homeowners, consumers, and appropriators may mean the effort to renew Chapter 313 and keeping the subsidies rolling for renewables will face rough waters this session.

Taxpayer Fatigue

Taxpayers subsidizing corporations with multi-billion dollar market caps hope that a reversal in Texas will be the case. Though big businesses and local governments–especially those that want to build more solar and wind farms–will spend millions on lobbyists to overcome opposition to their handouts, those in charge of Texas’ purse strings may decide that this is the time to draw them a little tighter.