Solar Needs Market Changes To Bring Benefits To ‘Untapped’ Texas
Solar power advocates hope this will be the summer that drought-stricken Texas sees the potential of this abundant natural energy source, and changes electricity market structures to take advantage of it.
“Texas is one of the largest untapped solar markets in the U.S.,” says Maura Yates of SunEdison, an integrated supplier of solar equipment and developer of large-scale projects. “When you look at Texas’s overall load of 68 gigawatts, our 100 megawatts on the system is a rounding error at this point.”
Yates and others say they bring a solution to Texas’ electricity challenges that is water-wise, fast to deploy, and matches market needs.
“Where the opportunity lies now for solar is in this conversation,” says Carrie Cullen Hitt, senior vice president of state affairs at the Solar Energy Industries Association (SEIA). “How can solar help with some of these major issues staring Texas in the face?”
Some 64 megawatts of solar were built in Texas last year, ranking the state 10th for new capacity. But oh, the potential. The SEIA says Texas could accommodate more than twice the solar generation capacity of any other state. Its rooftops alone could host 60,000 megawatts.
The solar development that has occurred in Texas so far is driven largely by municipal utilities, such as Austin Energy, responding to “specific civic interest,” says Hitt.
Though it has plenty of sunshine, Texas lacks a broad policy to spur the solar industry. It has not shied away from the other leading renewable energy source, however.
In 1999, under then-Gov. George W. Bush, Texas enacted a pioneering renewable energy mandate that propelled the state—blessed with the best wind resources in the country—toward wind-energy leadership. An expanded renewable energy mandate and a mechanism for driving construction of transmission lines connecting the state’s windy west with urban demand centers contributed to a decade-long wind bonanza.
Texas had more than 10.4 gigawatts of commercial wind turbines in operation that supplied 9.2 percent of the state’s electricity in 2012. On a windy evening in February of this year, wind generation supplied a record 28 percent of electricity used in the three-quarters of the state managed by the Electric Reliability Council of Texas (ERCOT), which operates the state’s grid and manages its deregulated electricity market.
Despite that, Texas—one of the few states in the country with growing electricity demand—faces generation capacity shortages.
On Wednesday, ERCOT confirmed its earlier prediction of an abnormally hot summer, with electricity demand likely to break a record set in August 2011, and edging uncomfortably close to total available generation. The ERCOT asks people to conserve power when the grid is nearing its limit, and again faces “the possibility of rotating outages if needed to protect the grid” in extreme conditions, ERCOT executive advisor Kent Saathoff said in a statement.
Solar could help with that, advocates say.
Solar power production peaks at the same time as electricity demand: on hot, summer afternoons when everyone is turning up the air conditioning. Solar panels can also be installed on rooftops in urban load centers, quickly adding generation closer to where it is needed, without costly and time-consuming transmission upgrades.
“Solar is one of the fastest technologies to bring online, and could be helping out as soon as summer 2014 if there was a viable solar market,” David Brochu, vice president of development for Recurrent Energy, which builds utility-scale solar projects, says via e-mail.
And photovoltaic solar panels use almost no water (except for occasional cleaning) to generate electricity, which should be top-of-mind as much of Texas endures its third consecutive year of drought.
“As a state that needs more generation, it’s really important that the generation they select is cognizant of the water resource restrictions they have,” says Yates, SunEdison’s director of governmental affairs for the Intermountain West.
Moreover, making power from sunlight provides a hedge against fluctuating fossil fuel prices.
“Over a long-term basis, we’re not exposed—and we don’t expose ratepayers and customers—to the risk and volatility of the natural gas market or just the general energy market,” Yates says, adding that this can help keep prices predictable, bolstering Texas’ attractiveness for new businesses.
SunEdison has developed about two-thirds of the utility-scale solar currently online in Texas. Its parent company, MEMC Electronic Materials, has a polysilicon factory in Pasadena, just east of Houston, which makes the raw material for SunEdison solar modules, as well as for the semiconductor industry. The company is also considering building additional solar equipment manufacturing capacity in Texas, Yates says.
About 3,200 people work in the solar industry in Texas, according to The Solar Foundation.
The usual knocks on solar—and other renewable energy sources—are cost, particularly in a period of low natural gas prices, and reliability.
Solar costs have declined dramatically in the last three years, however, amid a global supply glut. And utilities—including municipal utilities in Austin and San Antonio—are designing incentive programs for rooftop solar that recognize its value in avoided costs for environmental compliance, transmission development, and fuel associated with natural gas power generation.
“Solar’s declining cost curve will catch up with the electricity cost curve eventually, bringing solar into the Texas energy mix,” Brochu says.
Yates says SunEdison solar is ready to compete in Texas without subsidies—a position that surprises some people in the energy industry. “We’re not looking for special incentives or unique subsidies to help our technology compete,” she says. “We just want to compete on a level playing field.”
As for reliability, solar is still subject to the vagaries of clouds and sun, but with forecasting improvements, solar output can be predictable an hour or a day in advance, allowing grid operators to plan accordingly. Emerging electricity storage technologies make this easier, while adding costs. (It’s also worth noting that all energy generation sources have reliability issues over the long term. The rolling blackouts that hit Texas in February 2011 were caused in part by coal power plants that went offline because they were unprepared for a cold snap.)
With all of its potential benefits, why has Texas been slow to adopt solar?
Solar developers have struggled to finance projects that would sell power on a merchant basis into the ERCOT wholesale energy market, where prices are set by real-time supply and demand.
There is no provision for the high upfront capital cost of a solar plant. The market structure is better suited to fossil-fired plants, which have moderate capital costs, but higher and less-predictable long-term fuel costs.
“It’s just a new type of market for us as a solar company to innovate and finance within,” Yates says, noting that the impetus is on the solar industry to get its financial backers comfortable with the market structure.
Most of the large-scale solar development that has occurred in Texas so far has been through long-term, bilateral agreements between solar developers and municipal utilities or electricity co-ops, such as Austin Energy’s 25-year contract with the 30 megawatt Webberville Solar Farm, which began delivering power last year. These contracts do not carry the risk of the merchant energy market.
Meanwhile, Texas is trying to create market incentives to attract power plant investment in the state to address its electricity supply shortfalls. The creation of a so-called capacity market—in which, in simplest terms, ERCOT would collect funds from utilities and use it to pay for new generation to be built—could reduce some of the financial risk of solar development in Texas.
The exact form of a capacity market—if it happens at all; other options are under consideration—is unclear. It will undoubtedly be a complex process, with powerful energy industry players vying for advantage.
“Some sort of change, like a capacity market, could be what will provide solar a path to success, but we are currently evaluating what the real impact of this could be,” says Brochu of Recurrent Energy. “Capacity alone might not jump start the solar market, but we see it as a critical component.”
The Public Utility Commission of Texas is expected to take up the issue after the 83rd Legislature completes its regular session May 27.
“First and foremost, we as the solar industry need to be able to innovate and be nimble so that no matter the outcome at the commission, we make sure we have a seat at the table, and make sure there’s not barriers to entry,” Yates says.