Texas is facing a significant shift in its energy landscape – to a more environmentally sustainable future. But is this transition helping or exacerbating the challenges that the Texas market is facing?

At the same time as navigating an increased reliance on wind and solar power, the state is grappling with increased weather extremes and volatility, which are driving up electricity costs and placing a strain on the grid. Not only that, there’s a lack of interconnections to other Independent System Operators (ISOs) that leaves Texas isolated.

These changes are creating a unique mix of challenges and opportunities for rural electric cooperatives (RECs) and municipalities. Traditional power plants are no longer running as effectively as they once did, being forced to load-follow. This has created a need for new solutions and strategies to keep the Texas energy landscape resilient and reliable. 

In this blog post, we’ll further explore the weather challenges facing the Texas market, why the concentration and distortion of the market are amplifying these challenges, and the role of distributed generation.

Increased Reliance on Wind and Solar Energy

In recent years, Texas has seen a significant shift towards renewable energy sources, particularly wind and solar energy. From 2018 to 2022, over 30 GW of renewable energy capacity was added to the state’s energy mix – a trend that shows no signs of slowing down. In fact, Texas now boasts more wind energy than any other state and is on par with California when it comes to utility-scale solar energy.  

Looking ahead, the prevalence of renewable energy – particularly wind – is only predicted to increase. 

Installed Capacity Chart

This shift towards renewable energy is driven by a combination of factors. First and foremost, the state’s annual load continues to grow at a rate of 2-4% per year. This growth is fueled by increased industrial and computing loads, as well as population growth.  

Each year, new peak load records are broken, and with the rise of technology like electric vehicles, we can only expect this trend to continue. 

While a transition to more renewable energy sources has a huge environmentally positive effect, it’s not without its challenges.  

Wind energy production is highest during non-summer months and off-peak hours. This means that wind output – or lack thereof – during high load periods increases the risk of energy shortages. As more solar energy and battery storage enter the market, this issue can be mitigated with this more diverse energy mix. 

The Growing Impact of Extreme Weather

The shift towards renewable energy in Texas is happening against a backdrop of increasingly extreme weather events.  

Winter Storm Uri in February 2021 and the prolonged summer heatwaves in 2023 are just two examples of how weather extremes are becoming increasingly common.  

These events are not just inconvenient – they have serious implications for the state’s energy infrastructure. Extreme weather drives up electricity costs for customers and places a strain on the ERCOT grid, specifically reserves. This strain can lead to power shortages, blackouts, and other disruptions that impact the lives of Texas residents. 

This brings into question the resilience of the Texas grid and what RECs can be doing to prepare for these increasingly regular extreme weather events.  
 
What happens during late evenings of extreme summer temperatures when solar power is no longer available but wind generation hasn’t picked up? Demand and price peaks that can’t be controlled.    

{Read more about the effect of extreme temperatures in Texas in our blog, The Outlook for ERCOT: What the Data Tells Us} 

West Texas Import and Transmission Challenges

As Texas continues to embrace renewable energy, it’s also grappling with some unique challenges. One of these is the issue of transmission across West Texas. The region has seen tight transmission and congestion, particularly in far west Texas, the Dallas-Fort Worth Area, and imports into Houston. 

These transmission challenges can lead to inefficiencies in the energy market, making it harder for RECs and municipalities to meet the increasing demand for power. It’s a complex issue that requires innovative distributed generation solutions that could include a combination of PV solar, wind, reciprocating engines, and battery storage. 
 
Yet transmission improvements aren’t a quick fix. The effects of decisions today won’t be felt until years in the future, so RECs must start acting now to protect their members.  

“To increase potential transmission may take up to 10 years – the situation grows worse before it gets better, even once you’ve recognized the problem and are trying to tackle it” Scott Tampke, CEO at PPI 

Concentration and Distortion in the ERCOT Market

Concentration Graph

On top of weather volatility, Texas is grappling with the highest concentration and distortion of any market in the US 

In 2022, 30% of ERCOT’s annual revenue potential occurred in just 6 days – a striking indicator of the market’s volatility. 

That’s not to mention the highly distorted nature of the market as well. The next graph divides the mean daily price spread by the mode. The picture is stark – indicating how much the annual revenue potential is impacted by ‘typical’ versus ‘atypical’ days. The result is a market where average revenues are much higher than typical day revenues – the perfect example of extremely weather-driven revenue variability. 

So, what does this mean for Texas RECs?  

In short, it means that systems to stabilize this volatility are essential. This can be achieved by backing up renewable energy supply with immediately dispatchable power from sources like battery storage and reciprocating engines. 

Legislative Changes for the Reliability of the Texas Energy Landscape

In response to the challenges facing the Texas market, there have been significant legislative changes. One of these is the introduction of a faster online ancillary services product, ECRS, which came online in June 2023. The PCM capacity support mechanism has also created immediate effects in the market.  

Creation of the new ancillary, DRRS (Dispatchable Reliability Reserve Service), and renewable firming requirement are among the ongoing changes as ERCOT adapts to meet the changing supply-demand balance. 

All of these recent and ongoing changes point toward a common goal: encouraging investment in facilities that can provide readily dispatchable energy during high demand and ensure a reliable power supply during critical periods. 

Where Distributed Generation Fits In

The rise of renewable energy sources has disrupted the traditional energy market and has created a need for new solutions and strategies to keep the Texas energy supply resilient and reliable. 

Distributed generation, specifically grid-tied microgrids, are a crucial piece of that puzzle. These systems can respond to market inefficiencies, making it easier for RECs and municipalities to respond to increasing demand and market changes. 

Our approach isn’t just about adding more wind and solar power to the grid. It’s about creating a balanced energy mix that includes immediately dispatchable power from sources like battery storage and reciprocating engines. This approach ensures that even during periods of high load and extreme weather events, energy supply remains stable and reliable. 

As the Texas energy landscape continues to evolve, we’re excited to be part of the journey. We’re committed to providing energy solutions that not only meet the needs of today, but also anticipate the challenges of tomorrow. 

Are you ready to explore the benefits of distributed generation for your community?  

Get in touch with us to arrange a call with our team about creating a resilient, reliable, and sustainable energy future for rural Texas.