Subsidies for wind and solar have long distorted Texas’s electricity market, threatening higher prices and greater likelihood of blackouts and ‘demand reduction’ events.
The April 2 piece, “Texas Targets the Free Market,” by California Policy Center president Will Swaim, misses the mark.
Mr. Swaim’s instincts are right; markets are generally superior to government fiat. But in making his point, he ignores a woolly mammoth in the room: Federal subsidies for wind and solar have long distorted Texas’s electricity market, threatening higher prices and greater likelihood of blackouts and “demand reduction” events — purposeful outages to reduce the strain on the grid.
It’s instructive that in Swaim’s sprawling 1,478-word piece there are zero mentions of federal price supports for wind and solar power, nor any mention of the heavy thumb of federal regulation that discourages investment in reliable power sources while pushing early retirements of coal-fired power plants in Texas and around the nation.
So, what is happening in Texas?
In 1995, Texas deregulated its wholesale electric-generation market, followed four years later by a deregulation of the distribution market. This overturned the vertically integrated monopoly model where power was generated, distributed, and consumed locally by the same regulated utility.
Critics said the Texas electricity-market model would result in higher prices for consumers. It did, for a few of the early years, as higher price signals encouraged investment in new power plants. Ever since, Texas’s electricity prices have been below the national average.
In 2022, Texas’s average retail electricity prices were 10.32 cents per kilowatt hour (kWh), 17 percent below the national average. California’s average retail electricity price was 118 percent higher than in Texas and 80 percent higher than the national average.
An interesting historical footnote on this subject is that California attempted to deregulate its electric market in 1996, but the law was flawed in that it was a partial deregulation, with retail prices capped. The whole enterprise collapsed in 2000 and was one of the causes of former governor Gray Davis’s recall from office in 2003.
When Texas deregulated its electric market, heavy federal subsidies for wind power from the Energy Policy Act of 1992, known as the Production Tax Credit (PTC), were due to expire in June 1999. But the Production Tax Credit was revived in December 1999 and has suffered a few near-deaths since. President Joe Biden’s Inflation Reduction Act extended the PTC through 2025, with a subsidy of 2.75 cents per kWh. There are similar tax-credit supports for solar power through 2034.
These subsidies matter because in Texas’s electricity market, investment calculations determine what sort of generation gets built. In the case of wind turbines, the PTC allows wind generators to make money — even when they pay the Texas grid to take their periodic power.
This happens with frequency, typically during windy nights when power demand is about half of typical daytime demand. Because electric supply must equal electric demand in real time, an oversupply of wind power means that power must be curtailed from other generators connected to the grid. Negative pricing “encourages” traditional power plants to take themselves offline — or else lose money paying the grid to take their power.
Negative pricing is just a symptom of the distorting effect of federal subsidies and federal regulatory pressure against hydrocarbon fuels, especially coal. In 2018, Texas saw the premature retirement of some six gigawatts of coal-fired power plants, with overall losses in reliable generation of about four to five gigawatts since. In the meantime, the installed capacity of wind power is up almost 16 gigawatts (a 74 percent increase), and the installed capacity of solar power is up almost 14 gigawatts (a 1,300 percent increase). To put these numbers into context, Texas’s record peak power demand was on July 20, 2022, at 80,038 megawatts or 80 gigawatts.
But not all power is equal. Maintaining grid stability is a delicate balancing act that wind and solar power complicate rather than helping. The grid must maintain a frequency of 60 hertz (Hz) — 60 cycles per second. As power demand grows on a hot day, the frequency of an electric grid might dip slightly, causing power-plant generators to impart some of their inertial energy — called spinning mass — to the grid, boosting the available power and pushing the frequency back to 60Hz. These generators will then consume more fuel to keep spinning at a certain rate. Solar is incapable of that. And wind turbines, if they’re spinning at all, can only impart a small fraction of what far larger thermally powered turbines are capable of. Battery farms are similarly incapable of performing this vital load-balancing function.
Thus, wind and solar electrons, which are periodic, are of less utility to a grid than are electrons impelled through a grid by a traditional power plant or hydroelectric dam. Yet, under our current electrical-market system, all electrons get the same market-clearing price, regardless of their quality.
To better explain the difference between markets, let’s compare gasoline to electricity. The market for gasoline is straightforward enough. Oil is found, brought to the surface, and transported to a refinery where it is processed into different fuels and lubricants, one of which is gasoline. This, in turn, is transported to retail outlets and sold. If you go to a gas station and there’s no gasoline available, or the price is higher than you want to pay, or the quality of fuel is too low, you can easily go to another station. If the supply of fuel starts to dip compared to demand, prices increase, signaling the market to make more supply. Because fuel is stored, this can happen over the course of days and weeks without a disruption of supply. The system works to the benefit of consumers, and, despite California governor Gavin Newsom’s claims to the contrary, the market is fiercely competitive.
In an electrical market, supply and demand must be equal at all times. If supply dips, consumption of electricity must be curtailed immediately. If it isn’t, and the frequency drops below 60Hz for more than a few minutes, massive, permanent damage can happen to generators, transformers, and even equipment drawing power from the grid.
This was the danger during 2021’s Winter Storm Uri, a 100-year event that saw temperatures plunge to single-digit and even below-zero temperatures for days as far south as San Antonio. The storm triggered a cascade effect of power outages. Natural-gas lines froze. In some cases, this was due to Obama-era environmental policies that forced the replacement of natural-gas-powered compressors that moved the gas along pipelines with electric compressors. When rolling blackouts cut off the power to the compressors, gas needed to fuel power plants and heat homes stopped moving — and in some cases froze — and starved power plants of fuel. At one point, due to a combination of lack of fuel, cold-weather failures, and pre-planned maintenance shutdowns that couldn’t be reversed in time, Texas’s thermal plants were operating at 40 percent capacity. Of course, little attention was paid to wind and solar, which, at its low point during the storm, produced 0.3 percent of installed capacity.
Swaim suggests that Texas learned nothing from the prior big winter storm in 2011 — but that event saw temperatures hit 14 degrees for a single day in Central Texas — not the multi-day deep freeze we saw with Uri.
Since Uri, Texas has winterized a significant portion of its grid, as well as applied lessons learned on how to maintain its critical infrastructure. But no amount of winterizing will keep the heat on in a storm if the grid becomes overly dependent on wind and solar power.
Texas lawmakers are in the middle of their biennial 140-day legislative session, with several bills designed to address the Lone Star State’s electrical challenges. S.B. 7 holds particular promise. It passed unanimously with bipartisan support out of the senate Business and Commerce Committee on April 3 and would finally recognize that not all electricity fed into the grid is equal — some power is more reliable, some less, and markets must price in reliability. Otherwise, with ongoing and generous federal subsidies, investors will continue to overbuild wind and solar while forgoing the construction of reliable thermal power plants — or even prematurely retiring them — placing Texas at increasing risk of blackouts and demand-reduction periods.