The government shouldn’t pick winners and losers in the marketplace – but they try.
Renewable energy, driven by state and federal subsidies, is driving out baseload producers and jeopardizing the reliability of the electricity grid. According to ERCOT’s 2017 Capacity, Demand, and Reserves report, the expected 2018 peak reserve margin for the Texas electricity market has dropped to 9.3%, below the 13.75% target. Six months earlier, ERCOT had projected a reserve margin of 18.9%. This drop is primarily due to retiring generation sources, mostly coal-fired plants. Some would see this as a success, but favoring less reliable sources has an obvious downside—unreliability.
Due to the federal Renewable Energy Production Tax Credit, renewable energy generators are, at times, able to pay customers to take electricity—known as negative pricing—and still make a marginal profit. This reduces the profits of more reliable energy generators, such as coal and nuclear. Driving out these generators harms grid reliability. State incentives and local tax breaks for renewables compound the problem. Some politicians want to fix this with more intervention, more subsidies, and a capacity market to increase reliability of the grid.
However, Elliott Raia and Vance Ginn of the Texas Public Policy Foundation show how the government picking winners and losers isn’t good for reliability. Subsidies for renewable energy distort the incentives for a reliable electric grid. Raia and Ginn explain how the market, in a more competitive environment, could fix reliability issues. They use nuclear as an example:
“Nuclear…has the ability to operate at full capacity 90 percent of the time. By contrast, solar energy can only sustain maximum output less than one-third of the time and wind generation just about half of the time because the sun isn’t always shining and the wind isn’t always blowing. Another source of energy must always be ready to back up unreliable renewables, which is often coal and natural gas.
Nuclear power has even proved its reliability in the face of devastating conditions. A two-reactor nuclear power plant located near Houston, known as the South Texas Project, took a direct hit from the Category 4 Hurricane Harvey. While Texas’ wind farms quickly cut off generation due to high winds, the nuclear power plant continued providing power at capacity for struggling communities during the disaster.”
Regardless of one’s preference for renewables, removing federal and state incentives for specific generators, i.e., not picking winners, will allow the market to meet Texas’ capacity and reliability needs.