Texas tries to counter market manipulation favoring less efficient alternative energy

Houston Chronicle:

Renewable energy has prospered in Texas over the years, supported by federal subsidies that have helped to make the state the biggest producer of wind power in the nation and lowered electricity prices for Texas household and businesses.

But now Texas lawmakers are examining ways to undermine that support and strip away what fossil-fuel interests have long decried as unfair advantages for wind and solar industries. The state Senate on Wednesday passed a bill that would require state regulators to determine how to eliminate the financial advantages created by federal subsidies through measures such as new fees on renewable generators or higher rates for traditional generators — moves that would likely raise retail electricity prices.

A similar measure was approved earlier this month by the House committee on State Affairs.

The goal of the legislation’s proponents is to slow the development of the wind and solar generation that is taking increasingly bigger shares of the Texas power market, according to Joshua Rhodes, research associate at the University of Texas at Austin’s Energy Institute. Wind energy today generates nearly 20 percent of the state’s electricity.
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In Texas, the combination of subsidies and lower production costs have made wind power cheap, helping to lower wholesale and retail power prices. At night, for example, when demand is low and winds blow strong in West Texas, so much power can flood the system that wholesale prices turn negative — that is producers pay buyers to take the electricity.

Wind generators are able to keep producing even when prices turn negative because they can receive a federal production tax credit of 2.3 cent per kilowatt hour over 10 years. That rankles the trade group Texas Competitive Power Advocates, which represents seven power generators including NRG Energy of Houston and Princeton, N.J., Calpine of Houston, Luminant of Dallas, Talen Energy of Pennsylvania, Exelon of Chicago, Tenaska of Nebraska, and Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell.

In Texas, the state’s grid manager, the Electric Reliability Council of Texas, chooses which power to buy based on cost, with new prices established every 15 minutes. The production tax credit allows wind producers to bid negatively to ensure that ERCOT takes their power, said Michele Gregg, executive director of Texas Competitive Power Advocates.

The credit has also created a rush to develop projects to qualify for the credit in greater quantities than the market needs or can support, she said.

The influx of wind power has not only driven down prices and profits for her members, Gregg said, but also crowded out more reliable generation sources that can produce power when the wind isn’t blowing and the sun isn’t shining. That creates instability in the state’s electric grid, said Gregg, contributing to ERCOT’s historically low reserve margin of 7.4 percent, just over half of the grid manager’s goal of 13.75 percent.
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The fundamental weakness of alternative energy is the inability to scale to meet demand.  That is compounded by distortions in the marketplace when its energy is forced into the system when it is not needed.  While fossil fuel also enjoys some tax breaks it is also a much more reliable source of energy that can easily be scaled up or down to meet demand.  Fossil fuels are also much more reliable in extreme weather.