Changes in the Texas wholesale energy grid may increase prices

In August 2017, City Council made a commitment to providing 65 percent renewable energy to its residents by 2027. This aggressive energy plan is, according to Robert Cullick, director of communications and marketing at Austin Energy, the only one of its kind in the country.

At the Nov. 13 meeting of Council’s Austin Energy Utility Oversight Committee, Erika Bierschbach, AE’s market operations and risk management manager, reviewed upcoming changes to the Texas wholesale energy grid and their corresponding effects on pricing. The most noteworthy of these changes was a 5 percent shutdown of fossil fuel power generation in 2018.

Cullick told the Austin Monitor that a portion of this reduction will be caused by three coal-burning plants being shuttered and a natural gas unit being taken off the market.

“When it was announced that 5 percent of the state’s power-producing capacity would be retired by next summer, we saw an increase in the predicted cost of peak summer-day electric power of 20 percent,” Cullick told the Monitor. This volatility, he noted, is a natural component of the market, and Austin Energy is working to maintain stability for utility customer pricing.

Maintaining price stability for the customer, however, is a delicate balance when trying to bring more renewable energy sources into the market. At the meeting, Mayor Steve Adler said that Austin Energy should remain active in purchasing future energy contracts to stabilize prices. Council Member Alison Alter suggested employing local solar energy generation to provide balance.

Bierschbach explained that currently, Austin Energy continues to bet on future prices in the market by purchasing natural gas futures to bring down the cost for the customer.

In addition to purchasing energy for a later date, to help balance the decommissioning of traditional fossil fuel energy sources, several renewable energy sources are being brought onto the grid. Cullick told the Monitor that three solar plants have been brought online in the past 12 months. Moreover, Bierschbach told the committee that the incorporation of Lubbock and its wind farms to the Electric Reliability Council of Texas region is under consideration. “We will know this winter if Lubbock will be part of ERCOT or not,” she said.

This recent volatility that Bierschbach presented to Council members is due to the fact that over the last 10 years, ERCOT has seen a “growth in generation or supply that has exceeded the growth in customer demand,” she told Council members. The result of this demand decrease is that electricity prices have remained substantially lower than anticipated. In response, ERCOT is contracting supply to bring up prices across the wholesale grid.

However, Bierschbach said that when this disparity between supply and demand eventually comes to a head, even a small 5 percent decrease “can mean the difference between all systems go or rolling brownouts.”

Nor is adding more renewable energy to the grid a perfect solution. Renewable energy is not always as reliable as its fossil fuel-based counterpart. Energy from renewable sources “may not always be available when the power is needed,” explained Bierschbach. It is also significantly more expensive for offering less reliability.

So, according to her, the question now becomes, as more green sources are added to the wholesale grid to replace non-renewable sources, will the environmental benefits outweigh the costs?

Photo by ((brian)) made available through a Creative Commons license.

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