On Monday, the Texas grid operator (ERCOT) released its estimate of the impact of the Environmental Protection Agency’s proposed Clean Power Plan, which regulates emissions of carbon dioxide from existing power plants and is likely to significantly boost renewable energy development. Some aspects of the study’s results have been misreported in the press, so it is worth clarifying what ERCOT’s analysis actually says:
1. Wind can help reduce costs. The grid operator’s study found that in a baseline scenario without EPA’s plan in place, it would cost $17.7 billion annually to operate the state’s power plants in the year 2029. With a limit on carbon emissions in place, that cost would fall to around $16.5 billion per year, and provide fuel savings of $1.2 billion per year. This reduction in total fuel costs is quite remarkable, as the largest impact of EPA’s rule will be the use of higher fuel cost gas generation to replace coal generation. In other words, the fuel savings from the increased use of renewable energy were more than enough to overcome the increased fuel cost associated with greater gas use in ERCOT’s analysis. Had ERCOT modeled the impact of renewable generation alone, the fuel savings would have been much larger. Moreover, ERCOT’s analysis did not account for how fixed-price wind energy protects consumers from fluctuations in the price of other fuels, which is extremely valuable in a state that is expected to produce the majority of its electricity from natural gas. This strongly reinforces our recent findings about the consumer benefits of wind energy in Texas.
Many press reports missed this $1.2 billion reduction in fuel costs because it is only revealed at the very end of the report. Earlier in the report the fuel cost savings had been rolled in with the cost of emissions allowances, making it appear as if the cost of producing electricity would increase by 14-20 percent in 2020 and 5-7 percent in 2029. However, including the cost of emissions allowances is misleading as Texas is extremely unlikely to pursue a compliance strategy for the Clean Power Plan that uses carbon emission allowances. Regardless, even if Texas did, the money spent on emissions allowances would almost certainly be refunded to ratepayers, as others have noted. So in reality, the cost of operating the state’s power plants would significantly decline under EPA’s plan, and the reduction would have been far larger if the fuel savings provided by renewable energy were not masked by the increased fuel costs of gas generation.
ERCOT correctly notes that these fuel cost savings do not include the cost of investing in new power plants, but ERCOT’s analysis finds those costs to be quite small. In the most aggressive case, the capital cost was an up-front investment of around $11 billion, an investment that would be recovered in less than 10 years through the $1.2 billion per year in fuel savings. These up-front investments would be recovered even more quickly if the fuel savings of wind energy were evaluated on a stand-alone basis instead of being masked by gas’s increased fuel costs.
Moreover, ERCOT’s analysis used outdated costs for wind energy that are 36% higher than the actual cost of wind plants installed last year, according to the Department of Energy’s latest figures. As a result, the ERCOT’s model built a large amount of solar generation, which accounts for around 2/3 of the total capital costs. Had ERCOT used more realistic assumptions for the cost of wind energy, the model would have built far more wind generation at a much lower total cost, resulting in an even faster payback.
2. Wind energy is reliable. At several points over the last several years, wind energy has proved its value by playing a critical role in keeping the lights on in Texas when conventional power plants unexpectedly failed. ERCOT’s analysis takes a close look at how an increased use of renewable energy would affect the grid, and finds no insurmountable barriers to reaching the levels needed under EPA’s proposed plan. For the important reliability services of inertial response and frequency response, which are necessary to ensure that the lights stay on when a large conventional power plant unexpectedly breaks down, ERCOT’s analysis finds that even with a much higher amount of renewable generation “there will be no significant change compared to current operating conditions.”
ERCOT does find that the very large amount of solar generation added in its model will increase the need for generation ramping during periods when the sun is rising and setting, though those changes can be more readily accommodated because they are predictable. Changes in wind output are also increasingly predictable thanks to the use of wind forecasting. Had ERCOT’s model used more realistic wind cost assumptions and therefore built more wind generation, the ramping challenges associated with sunrise and sunset would have been even smaller. ERCOT’s report also notes that wind plants’ advanced controls, which make them one of the power system’s fastest sources of active power control, could play a role in accommodating some of these ramps.
Previous ERCOT analysis demonstrates that wind only minimally increases the need for the flexible operating reserves that are used to accommodate all sources of variability. AWEA analysis of that and other ERCOT data confirms that the cost of accommodating wind is less than 1/17th of the cost of the reserves used to accommodate conventional power plant outages.
3. All sides agree: it’s time to start planning for the grid of the future. One of the most important conclusions in ERCOT’s report is this: “In the ERCOT region, it takes at least five years for a new major transmission project to be planned, routed, approved and constructed. As such, in order for major transmission constraints to be addressed in a timely fashion, the need must be seen at least five years in advance.” We couldn’t agree more. EPA’s Clean Power Plan does not take effect until 2020, and the most stringent requirements are not in place until 2030, giving ERCOT and other state officials sufficient time to plan and build the power lines that will allow them to use the optimal mix of resources to reduce emissions.
The power system has gone through many transformations – whether connecting new coal, hydropower, nuclear, or gas power plants – and all have required major investments in transmission and other infrastructure. The transition to a renewable energy future is no different. ERCOT and others in Texas now have a grand opportunity to build on the success of the Competitive Renewable Energy Zone (CREZ) transmission lines, which have become the model for other regions seeking to implement effective transmission policy. The CREZ lines have paid numerous and often unexpected dividends, from allowing Texas to nearly double its use of wind energy, to accommodating increased electricity demand for oil and gas drilling in West Texas, to averting problems in major cities like Dallas and San Antonio.
As ERCOT correctly notes, the time to act is now. Texans have gotten to where they are today by taking a can-do attitude and grabbing the bull by its horns in situations like this. A failure to show leadership in planning for the grid of the future will only result in Texas having to play catch-up by cobbling together a last-minute plan of second-best options. This will unnecessarily put ratepayers on the hook for the higher costs and greater risks.