Electricity markets will work if Texas politicians will let them

The Public Utility Commission of Texas recently voted to proceed with a redesign of the Texas electricity market despite opposition concerned about its high cost and poor chances to improve reliability.

Independent evaluations of the PUC’s plan show that the most likely outcome of the PUC’s current direction is higher costs for consumers with no appreciable improvement in reliability.

Making electricity more expensive will not make Texas' electric grid more reliable. Instead, it will line the pockets of generators with billions of dollars that belong to Texas consumers. Texas should scrap the PUC's market redesign project.

Perhaps the best place to start to understand the problems with the PUC’s market redesign is that it does almost nothing to address the primary cause of unreliability in the Texas market, renewable energy. Instead, renewables will continue their current domination of the market, making up almost 99% of all new generation coming online in the next four years.

Texas long ago passed the threshold where its inherent intermittency can be adequately compensated for. The problem is a simple matter of physics. When wind and solar generation drop off the grid, new energy must come online instantaneously to replace it. This puts massive stress on the power grid, and having generation on standby to compensate is extremely expensive.

Today, everyone is pushing for batteries to plug these gaps, but they are not up to the task. Not only are they much more expensive than thermal generation, but it is impossible to install batteries anywhere near the quantity needed to fill in the gaps created by wind and solar generation.

The PUC’s plan essentially follows its recent actions of driving electricity costs up and grid reliability down. And seems to be driven more by corporate cronyism than concerns for reliability. Not only will renewable generators and battery manufacturers benefit. The PUC's new market design also implements a credit system that will provide payments to all generators totaling an estimated $5.7 billion a year. The PUC says consumers may not pay that much because energy costs may decline. Yet recent history shows that the PUC's promises for more affordable and reliable electricity have not come true.

Prior to the PUC’s vote, members of the Texas Senate's Business and Commerce Committee had sent a letter to the PUC commissioners asking them to pause the process until the Legislature could address its concerns about the PUC's proposed market redesign. Others also raised concerns.

Opposition to the PUC’s actions focuses on two main problems. One is that the PUC’s plan is simply an East Coast-style capacity market that eliminates competition in the market and instead relies on the PUC and managers of the grid to determine how much electricity we need and how much consumers should pay for it. Other U.S. capacity markets have only accomplished one thing: making electricity more expensive without improving reliability.

Another problem with the PUC’s action is that the plan does nothing to slow the growth of renewables—the PUC estimates that 99% of all new generation over the next four years will be solar or wind. Any effort to improve grid reliability without addressing the fundamental problem of intermittent generation will fail.

Underlying both of these is the concern that the PUC’s plan will do nothing to bring more reliable generation to the grid. In its recent report, The End of Texas’ Energy-Only Electricity Market, the Energy Alliance uses the PUC’s own studies to highlight this problem. It also calculates that the market redesign, coupled with existing market intervention, will result in Texans being saddled with an annual electricity tax as high as $8 billion a year by 2026.

There is, however, a path to reliable and affordable electricity. First, the Texas Legislature must tell the PUC to scrap its market redesign project. Second, the PUC must stop manipulating electricity prices, which includes dropping plans for adopting a mandatory reliability standard. Third, Texas must make renewable generators pay for the costs unreliable wind and solar are imposing on the system because of federal subsidies and eliminate all Texas subsidies for traditional and renewable generation.

In other words, Texas politicians and regulators should get out of the way and let the market work. That may be too much to expect from them, but Texas was built on dreams just as big. It might just happen.