Texas Legislation Would Give $10 Billion Boost for New Dispatchable Generation
The Texas State Legislature passed, and Governor Greg Abbott (R) is expected to sign, legislation creating a $10 billion fund to support construction of new dispatchable electric generation capacity in the Lone Star State. The law does not require that the new capacity be gas-fired, though most observers were able to connect the dots.
The governor is expected to sign the bill in the coming days.
On May 28, following passage of SB 2627 by both houses of the state legislature, Texas Lieutenant Governor Dan Patrick, also a Republican, issued this statement: "After Winter Storm Uri, it was clear for all to see that Texas needed more reliable, dispatchable power because renewable energy sources failed to keep the lights on for millions of Texans. ... SB 2627 will make sure that our grid is more resilient and levels the playing field between dispatchable and renewable energy sources."
Interestingly, the bill was supported by environmental groups and energy producers. News reports said environmental groups supported the measure in order to evade potentially more onerous legislation, including a proposal that would have made it more expensive for rural renewable projects to connect to the electric grid.
The $10 billion boost to support the "construction, maintenance, modernization and operation" of dispatchable generation could transform the economics of power production in the Lone Star State. Texas has built tens of billions of dollars of renewable generation over the prior decade, and the pipeline of renewable projects remains well stocked: Industrial Info is tracking about 193 renewable energy projects in Texas, valued at approximately $59.50 billion, that are scheduled to begin construction between January 2023 and December 2024.
According to the U.S. Energy Information Administration (EIA) (Washington, D.C.), roughly 50% of Texas' electricity was generated from natural gas in 2021. Renewable resources, mainly wind, generated about 25% of the state's electricity in that year. Coal and nuclear accounted for the rest.
Texas has been a national leader in the construction of renewable electric generation over the last decade. But as renewables garnered an ever-rising share of the electric generation market, another force--Winter Storm Uri in February 2021--caused elected officials, electric utilities, the Texas grid operator and the fossil fuel community to fret publicly about whether Texas' electricity supply was sufficiently reliable.
One expert who follows the power-generation sector estimated that about two-thirds of the outages occurred at thermal power plants, mainly coal, gas and nuclear plants, while renewables accounted for only about one-third of the outages during that historic winter storm.
Separately, as Texas flirted with rolling blackouts during recent seasonal peak periods, the Electric Reliability Council for Texas (ERCOT) (Austin, Texas) began to publicly state its concerns about the Texas grid's disappearing dispatchable generation, mostly due to retirements of coal- and gas-fired generation.
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While Texas has seen a surge in renewable energy development in recent years, dispatchable generation has only risen by a reported 1.5% between 2008 and 2020, while the population has grown by about 24% over that time, according to news reports.
During the recently concluded Texas legislative session, Charles Schwertner, a state senator, drafted S.B. 2627, known as the "Powering Texas Forward Act." It created a state fund of $10 billion to support the "construction, maintenance, modernization and operation" of gas-fired power plants, to ensure there is sufficient dispatchable generation to keep the lights on. The $10 billion is broken down as follows:
The law is designed to spur near-term construction. Initial disbursement of loan funds must take place by the end of 2025.
The law also provides for a "completion bonus grant" for the construction of dispatchable electric generating facilities in the ERCOT power region. As it does elsewhere in the legislative language, generating units eligible for these bonus grants must be dispatchable: "For the purposes of this section, a generating facility is considered to be dispatchable if the facility's output can be controlled primarily by forces under human control."
Energy storage systems are not eligible for either the low-cost loans or the completion grants. Power plants seeking loans or grants under this law must be greater than 100 MW in generating capacity.
Electric generating facilities built or modernized for the primary use of an industrial load or private network are not eligible for grant or loan funding. Nor can the funds be disbursed to support construction of a natural gas pipeline.
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