Wind and solar energy are far from perfect and present challenges for the Texas electricity grid, but intermittency and unpredictability are not the real issues. It’s the corporate contracts behind the projects.
Almost every day, an American company promises to buy electricity only from zero-emission sources. They want to claim credit for fighting climate change in their marketing materials, so they sign power purchase agreements which they quietly hope will also generate profits.
But a company in Michigan, for example, has a tough time accessing clean energy. Permitting rules and expenses make wind and solar projects too difficult or costly to build there. Instead, they decide to offset the power they get from coal and natural gas plants by buying and selling electricity halfway across the country, most likely in Texas.
Texas has a lot of wind and sunshine, which makes it perfect for these investments. But another reason we have so much renewable energy is the state’s wholesale electricity market, which makes it easy to build new projects and sell the power. A Michigan cardboard box factory can easily trade in electricity as a side-hustle.
Out-of-state companies sign power purchase agreements for enough wind or solar power to offset their carbon footprint back home. They can then claim they are powered by green energy. But since the Electric Reliability Council of Texas grid does not allow exports to other states, the company must sell the clean energy to the wholesale market and use dirty energy from their local grid.
This arrangement creates an opportunity to make big profits when wholesale prices spike in Texas, like during the freeze. Too many of these deals benefit the company’s bottom line at the expense of consumer reliability.
To keep things simple, let’s use wind energy as an example. For decades, wind projects could not compete financially with coal and natural gas, so the federal government offered a temporary $23 tax credit for every megawatt-hour produced. That leveled the playing field and spurred the industry.
Generating tax credits is now as crucial to the project’s profitability as the electricity itself. Operators routinely offer electricity to the ERCOT market for free in order to capture the $23 a megawatt-hour tax credit, which was not a big deal when wind generation was minuscule.
But as wind took greater market share, fossil fuel operators, which by most estimates need at least $20 a megawatt-hour to make money, became increasingly frustrated. They cannot compete with free, and they will certainly not invest in new power plants or even battery storage if they cannot make a reasonable profit.
Federal lawmakers created this distortion because they prefer to hand out credits rather than impose new taxes. Oil and gas companies also receive subsidies through other mechanisms. I would suggest Congress eliminate all subsidies and tax greenhouse gas emissions instead, something I’ve written about before.
Power purchase agreements, known as PPAs, allow companies to buy clean energy and generate tax credits. The wild price swings in the ERCOT market offer them a chance to sell electricity at a profit. But whether a PPA buyer is in-state or out-of-state makes a difference.
Local companies that rely on ERCOT electricity want an affordable and efficient grid. They are more likely to push for weatherization regulations. But out-of-state PPA owners crave price spikes to make money and do not want to spend one penny more than they must.
Dozens of companies made millions during the Texas Blackout because their projects kept operating. The proceeds from ERCOT customers’ enormous bills will go to some of the world’s most famous brands, which told customers they were going green to save the planet when they were actually making a profit.
The solution is not to get rid of PPAs, but to incentivize reliable generation. Texas needs common sense regulations and to connect ERCOT to the rest of the country. That would allow ERCOT to not only import juice when we need it, but to sell it when we have too much, and allow everyone to make greater profits.
Many nights the wind in West Texas blows so hard that the wind turbines produce more electricity than the state can use. ERCOT’s control room has to order operators to feather their blades so the grid is not overloaded, the opposite of what happened last month. Generators could sell that extra power.
Texas has more energy in more forms than any other state. If our leaders are smart, they will allow transmission lines to supply renewable energy to the rest of the country, knowing that those same transmission lines will save us from another disaster during those few days when we come up short.
Tomlinson writes commentary about business, economics and politics.