If anyone feels the impact of the shifting energy landscape, it’s Texan electric cooperatives. Specifically those in the ERCOT market. As Brazos sold its 2,200 MW gas-fired generation portfolio, it left a lot of uncertainty for their distribution members. The recent decision from the PUC to implement a “performance credit mechanism” in the market only adds to this uncertainty.
Larger energy demand, larger energy challenges
The state where everything is bigger leads the US in both energy production and consumption. Peak power demand climbed by more than 10,000 MW over the last decade – from 67,000 in 2012 to 77,460 MW during July 2022 heatwaves. The pattern will continue through the summer of 2023, when peak load is expected to reach or even exceed 82,739 MW. While energy consumption is trending higher in general across the US, consumption in Texas continues to break records due to unique factors.
Changing weather patterns in the state have made international news for the last few years. Record breaking summer heat waves and unprecedented cold snaps would already be enough to strain the grid and challenge RECs without the added complication of bankruptcies, legal battles and electricity market reforms. While Brazos has been the face of this struggle, co-ops all over the state are still dealing with these effects.
Meanwhile, members across the state demand lower costs. RECs were already concerned with trying to achieve reliability, stability and better costs without all of these added factors. Unfortunately, historically many RECs haven’t often had a lot of choice when it comes to price negotiation and costs. We know that in many cases, up to 80% of their costs are related to power supply.
A Texas energy history lesson
Most co-ops already know how the situation in Texas developed, but for those who don’t, here’s a little history lesson. Decades ago, distribution RECs contracted with G&Ts at definite rates. These rates weren’t always the same; there were demand charges as well as rates for energy. From those costs, they could then develop the rates that they charge their members. Keeping those rates stable has been important and is still very important today. However, then Yuri came and upset the balance.
Taking Brazos as an example, when they declared bankruptcy, they left a huge gap in the market. As part of their Chapter 11 reorganization, Brazos sold off their gas-generated generation portfolio. This meant that the 16 distribution cooperatives who had contracts with Brazos were suddenly without assured energy.
Obviously, this whole situation has far-reaching implications for the Texas energy sector. RECs had to come up with reliable solutions very quickly. After all, millions of Texans rely on them for their power needs. In order to meet short term needs, many RECs negotiated two-year contracts with independent power producers. However, this probably won’t be a viable solution for the long term.
Texan RECs need long-term distributed generation solutions
It’s clear that Texas RECs need to develop long-term solutions to these problems. But how? It’s one thing to say something needs to be done and it’s another to actually do it. Before going any further, it’s important to state that we’re still learning what Texas needs and how we can help. The solution for Texas isn’t one-size-fits-all. We’re building out models of these solutions based on what we’ve heard from Texas RECs and based on our own in-house experience.
We’re proud at Perceptive Power Infrastructure that our Head of Origination, Gary Hurse, is not only a born and bred Texan, he also knows co-ops. For nearly 14 years Gary was the CEO of Lea County Electric Cooperative which serves West Texas and Southeast New Mexico. If anyone understands Texas co-ops and their needs, it’s him. During his time there, he developed and managed the construction of a 46 MW natural gas plant with reciprocating engines interfaced with a 28.7 MW wind farm that were interconnected in the SPP integrated energy market. Before his time as CEO, he held other technical roles at Texas co-ops and was also employed with the Statewide as well as a G&T.
As much as Gary knows the technical side of the business, he also understands the human side. He knows that RECs have a strong community and he’s a loyal member of that community. They want to work with partners who are as trustworthy as they are knowledgeable. When he retired from his position as CEO he wanted to continue working with co-ops and he wanted to do something to address the challenges he saw in the sector. For that reason, he joined us at Perceptive Power Infrastructure.
A homegrown distributed generation organization
And Gary isn’t the only member of our team we’re proud of. At Perceptive Power Infrastructure, we’re a tight knit team of energy professionals from small-towns all across America who share a common belief. RECs nationwide keep the lights on for 42 million hardworking Americans and they need partners they can trust. For too long transparency has been lacking in the energy sector and we want to change that.
We understand that the rural economy is unique by its very design. For that reason, we meet with our clients where they are and we get to know their community first. What are their needs? What solutions do they think will work best for those needs? Then, we propose what we think will fit based on what we’ve learned about the cooperative and their budget. We open up our books so that our partners know exactly what they’re getting for the price they pay. From the first meeting to the completion of the contract, we keep the lines of communication open. Our goal is to build a relationship with honesty and trust at its foundation. We call this the Perceptive Way.
Fully funded projects
We also have the benefit of already being fully funded. As a True Green Capital Fund IV company, we don’t need to go to market and raise funds for our distributed generation projects. $660 million is already available to us. We think this is especially important for Texas, where long-term solutions need to be implemented relatively quickly. The time we can save by already having funds is invaluable. Read more here.
Distributed generation solutions for Texas
Our specialty at Perceptive Power Infrastructure includes a variety of distributed generation solutions. Right now we’re working on putting projects in the ground that contain technologies that can help Texas RECs. In the coming weeks we’ll announce more details about these plans.
In the meantime, we want to know more. It’s important to state that while we’re not a consultancy, we do take a consultative approach. Our projects should be as unique and specific as the communities they serve.
Until we announce our plans and ideas, if you represent an ERCOT REC and you’d like to share with us what challenges you’re facing and any questions you might have, we’d be happy to listen. Then, when we have the right answer, you’ll be the first to know.