Solar expected to disrupt Texas fossil-fuel apple cart

L.M. Sixel Dec. 2, 2019 houstonchronicle.com/business/energy

Texas dominates wind energy, producing far more wind-generated electricity than any other state. But when it comes to solar energy, Texas lags far behind California, North Carolina and other states.

But that’s about to change. Texas is expected to double its solar electricity output next year and then again the year after that, further transforming the state’s energy mix and pressuring traditional power generators that bet heavily on natural gas-fired power plants.

Solar developers are taking advantage of ample land, abundant sunshine and federal renewable energy tax subsidies before they drop from 30 percent this year to 10 percent for commercial projects and disappear entirely for rooftop installations in 2022.

Energy experts predict that as the solar industry grows, it will disrupt the status quo much as low-cost wind generators did, driving down power prices and profits of coal, natural gas and nuclear generation. Solar, however, may pose an even greater threat because unlike wind, it produces the most power when demand is highest — hot, sunny summer afternoons.

The additional supply could ease shortages and lower the extreme peak prices that drive a large share of generators’ profits and ultimately boost retail prices for consumers and businesses. Power generators recently reported increased profits over the summer as an extended period of triple-digit temperatures pushed wholesale prices to the state maximum of $9,000 per megawatt hour, compared to average prices during July 2018 of $112 per megawatt hour.

One analyst predicted that the energy market will feel the full impact of solar power sometime over the next five years as the industry reaches a critical nexus of about 20 percent of the state’s generation capacity. The impact will come faster if utility-scale battery storage, rare on solar farms now, becomes more common, making it possible to store solar energy for times when the sun isn’t shining.

“That will stabilize prices and make $9,000 per megawatt hour a distant nightmare, possibility never to be seen again in Texas,” said Ramanan Krishnamoorti, chief energy officer at the University of Houston.

Slow start

Today, solar energy produces about 1 percent of the electricity in Texas, according to the trade group Solar Energy Industries Association. About 91 percent of that comes from utility-scale or large solar projects that supply the power grid. Another 6 percent is generated by residential roof-top solar and the rest from commercial and industrial installations.

The solar industry taken off slowly in Texas because low electricity prices have made it difficult for businesses and homeowners to justify the cost of installing solar panels. Another factor is Texas doesn’t have policies in place that require utilities to buy back excess power generated by roof-top solar systems or mandates such as California’s, which require solar energy on new residential construction.

But solar is gaining in Texas as the costs of solar panel construction and installation fall, declining by nearly one-third over the past five years, according to the solar trade group. Frequent, powerful storms that knock out electricity also have pushed companies to install back-up power, including solar and battery systems.

Some corporations also are turning to solar power as a way to prove their commitment to environmental sustainability at a time when climate change is becoming a greater public concern. The financial services company JP Morgan Chase, for example, installed solar panels at its Plano facility to provide up to 7 megawatts of renewable power as part of sustainability goals to get 100 percent of its electricity from renewable sources by 2022.

A megawatt is enough electricity to power about 200 Texas homes on a hot summer day.

NRG Energy bet heavily on renewable energy under its previous CEO, but sold off that business under pressure from investors unhappy with the company’s returns. Now NRG, which has headquarters in Houston and Princeton, N.J., is back doing solar projects, teaming up with California solar developer Cypress Creek Renewables, which includes several solar farms near Houston and Dallas, totaling around 25 megawatts.

NRG has another 1,375 megawatts of solar energy in development with most projects becoming operational in 2021 and 2022.

Another factor making solar more attractive is the price of utility-scale lithium-ion battery storage has fallen 35 percent during the first half of the year, according to the New York accounting and consulting firm Deloitte. The ability to store power will make intermittent wind and solar power sources even more competitive with fossil fuels, according to Deloitte.

“It’s a game changer for solar and renewables broadly,” said Marlene Motyka, U.S. and global energy leader for Deloitte.

Texas had about 100 megawatt hours of installed battery storage on the grid last year, but expects to add more than 2,400 megawatts hours in the next five years, according to a study by the research firm Wood Mackenzie and the Energy Storage Association, a battery industry trade group. That would be enough to provide power for 480,000 homes on a hot summer day in Texas.

As more batteries and more efficient solar generation comes online, power prices will ultimately decline, reflecting the lower cost of solar power compared to other sources, said Motyka. The cost to build and operate a solar plant last year ran as high as $44 per megawatt hour compared to combined cycle gas plants which topped out at $74 per megawatt hour and coal which costs as much as $143 per megawatt hour.

ERCOT predicts Texas will end the year with about 3,000 megawatts of solar capacity and should more than double that to about 6,200 megawatts next year. By 2021, ERCOT expects Texas to have more than 11,000 megawatts of solar power capacity. Texas has about 22,000 megawatts of installed wind capacity, according to ERCOT.

To the rescue

Solar energy is already having an impact, albeit small, in Texas. When triple-digit temperatures in Texas pushed electricity demand on Aug. 12 to a new record, the wind didn’t blow as hard as usual and solar energy generators stepped in to cover some of the load, contributing about 1,400 megawatts of power out of that state’s 80,000 megawatts of total capacity.

At that point, the grid manager calculated Texas had only 1,460 megawatts of reserve power remaining before Texas faced rolling power outages. But the small amount of solar on the Texas grid wasn’t enough to keep wholesale power prices from soaring to $9,000 per megawatt hour.

The high prices are encouraging more solar development, especially utility-scale, said John Hall, director of regulatory and legislative affairs for the advocacy group Environmental Defense Fund. The move to solar — about two-thirds of new power projects in Texas are solar — is much like it was several years ago when wind generation accelerated and the low-cost, clean and abundant power source had the effect of lowering the overall cost of electricity.

“I’m thinking that we’ll see something similar with solar,” Hall said.