Commentary on Political Economy

Saturday 15 April 2023


A Texas-Sized Energy Fiasco

Austin passes subsidies for gas power to counter wind-power subsidies that have destabilized the state electric grid.

A flare burns excess natural gas in the Permian Basin in Loving County, Texas,PHOTO: ANGUS MORDANT/REUTERS

What a mess. Renewable subsidies have distorted and destabilized the Texas electric grid, which resulted in a week-long power outage during the February 2021 freeze. To prevent more blackouts, Republicans in the Lone Star State now plan to subsidize gas power plants.

The Texas Senate last week passed putative energy reforms to “level the playing field,” as Lt. Gov. Dan Patrick put it. Texans will now spend tens of billions of dollars to bolster natural-gas plants that provide reliable power but can’t make money because of competition from subsidized renewable energy.


Federal tax credits have encouraged an oversupply of wind power, which Lone Star State Republicans assisted last decade by charging rate payers $7 billion to build thousands of miles of transmission lines from West Texas and the Panhandle to big cities. Solar and wind supply about 30% of Texas power on average but sometimes can produce more than half.

Wind generators pocket a tax credit for every kilowatt hour they produce no matter if the grid needs it. A surfeit of wind is increasingly driving wholesale power prices negative—i.e., generators have to pay to offload their power. Wind producers can still make money because of the tax credits, but fossil-fuel plants that provide baseload power can’t.


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Baseload plants were developed on the financial assumption that they’d run 85% to 90% of the time, but many aren’t because they are being squeezed by renewables. Coal plants are closing, and gas generators are at risk. Too few new gas plants are being built to support a growing population and industry. As a result, power is becoming unreliable, especially during extreme weather.

The state Senate’s answer is to create a Texas Energy Insurance Program to support gas generators to backstop renewables. The state would commission gas plants with as much as 10 gigawatts—enough to power about two million homes during peak demand—to run only during grid emergencies. Keeping them idle at other times isn’t efficient, but letting them compete in the wholesale power market could make it even harder for existing generators to make money.

The Senate Finance Committee set aside $10 billion in its budget proposal to fund part of the cost for these emergency plants, but the legislation also proposes charging consumers. An insurance program would finance zero-interest rate loans to existing gas generators to maintain their equipment, which they are struggling to do owing to negative power prices.

Another Senate bill would create financial incentives for “peaker” gas plants that could ramp up on demand. Yet building peaker gas plants that run only 10% of the time costs about three times more than a baseload gas plant that operates 85% to 90% of the time.

To sum up: Texas Republicans are trying to fix the enormous inefficiencies caused by federal and state renewable subsidies with state subsidies that cause more inefficiencies.

Texas’s grid mess offers a portent for the rest of the U.S. and another illustration of how the Inflation Reduction Act will cost Americans much more than the $391 billion that Democrats claimed. States may have to subsidize backup power generation to keep the lights on. Subsidies that create market distortions invariably lead to more subsidies and more distortions. California couldn’t have done it better.

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