Moneytalks - Texas Energy Fund Seeks to Speed Development of New Gas-Fired Power Plants

Power generation is one of the leading consumers of natural gas in Texas — every month last year, generators in the state used between 4 Bcf/d and 8 Bcf/d, on average, with the volumes peaking (as you would expect) in August, when air conditioning and a friend with a pool are must-haves. But as we’ve seen, the Texas power grid is often stressed to its limit, and the state has been taking steps to significantly increase the gas-fired generating capacity available for peak-demand periods in both the hottest and coldest months. In today’s RBN blog, we discuss one of the state’s boldest steps yet: the creation of a multibillion-dollar fund to support the development of thousands of megawatts of new gas-fired generation. 

Electric power has been on a lot of Texans’ minds lately, especially if you live and work in the parts of the state hit hard by Hurricane Beryl earlier this month. We can’t explain why it took so long for many of you — and quite a few RBN staffers — to be reconnected to the grid. But today we can speak to the broader issue of what you might call “generation-capacity sufficiency” or, to put it in layman’s terms, will there be enough power plants to keep the lights on?

Power generation in the Lone Star State has been a frequent topic in the RBN blogosphere, and for good reason. Not only does Texas depend on gas-fired power for nearly half of its electric needs, but the state’s entire energy industry — not to mention the petrochemicals sector — would grind to a halt without the reliable supply of power. In Electric Avenue, we addressed how Texas is uniquely positioned because of its power grid’s deliberate isolation from other U.S. markets — which frees the Electric Reliability Council of Texas (ERCOT) from most federal regulations. ERCOT, which is responsible for about 90% of the state’s electricity service, operates an energy-only wholesale market, which means that generators are only paid for the energy they provide to the grid. (In a capacity market — the dominant approach in other organized power markets — generators are also paid a fixed fee for guaranteeing their power will be available when needed. As we’ll get to, that approach tends to encourage the development of more around-the-clock power sources like gas-fired power plants than an energy-only market like ERCOT’s.)

ERCOT’s energy-only market and the Texas grid’s almost total isolation from the rest of the U.S. are two defining elements of the state’s electric grid — a third is the state’s higher-than-typical reliance on variable renewable sources, especially wind but also solar. Yet another is the weather, including egg-frying temperatures that typically arrive in Texas in the spring and stick around into the fall — a topic we addressed in Hot Fun in the Summertime — and freakish wintertime events like the multi-day deep freeze (aka Winter Storm Uri) that brought the state (and the grid) to its knees in February 2021 (see Terminal Frost).