In the dry, sweeping plains of West Texas, wind turbines have cropped up in recent decades to meet the oil pump jacks that have long dotted the landscape. Now solar, too, is finding a home on the range.
Out there, the solar resource is “world-class,” says Charlie Hemmeline, executive director at the Texas Solar Power Association.
“But even in other places in the state, it’s very good,” Hemmeline added.
What Texas lacks in solar policy incentives — the state has no renewable portfolio standard or clean energy requirement — it makes up for with open-access transmission, a competitive energy-only market, wide swaths of land and an open-for-business attitude. Plus, electricity demand in the state is growing.
Once a state that staked its pride on the oil and gas industry, solar advocates are looking to Texas as a market on the upswing. Several recent deals, at prices rivaling those in more entrenched solar states, show Texas is not one to be messed with among emerging markets.
By the numbers
Solar developers now have over 59 gigawatts jammed into the interconnection queue of the Electric Reliability Council of Texas (ERCOT), the grid operator for the vast majority of the state. In December, the total capacity of solar vying for connection to the grid beat out wind for the first time.
Most of that solar won’t go on to completion, as many projects in the queue don’t yet have a full interconnection study or an interconnection agreement.
According to Warren Lasher, ERCOT’s director of system planning, many of the 35.7 gigawatts of wind projects in the queue are actually further along in development than the queued solar projects; nearly 10 gigawatts of wind projects have completed a security screening study and an interconnection study and have an interconnection agreement, while only about 2.7 gigawatts of the solar in the queue has reached those milestones.
But other data from ERCOT, showing expected fuel capacity additions, indicates that 9 gigawatts of large-scale solar will be joining the grid by 2021. That’s small compared to the 36.4 cumulative gigawatts of wind expected by that year, but it represents more than a quadrupling from solar capacity in 2018.
Wood Mackenzie Power & Renewables largely credits recent utility-scale solar announcements in Texas for the boost to its 2019 forecast.
“Our current transmission planning processes…are accounting for significant additions of solar facilities, particularly in the far west sections of Texas,” said Lasher.
Large-scale solar currently makes up just about 1 percent of ERCOT’s electricity, but the grid operator's resource planning scenarios show a significant build-out of solar as highly likely.
“Almost every scenario that we look at shows a significant continued build of solar generation technologies because the expectation today is that the technology costs will continue to come down and be increasingly competitive against any other type of new generation technology that can get built in the ERCOT system,” Lasher said.
While a December ERCOT study found that gas will continue to play a significant role in the generation mix in coming years — the latest report from ERCOT forecasts gas making up about 60 percent of peak summer demand in 2024 — Hemmeline said planned solar additions will help the state meet its needs. ERCOT’s current reserve margin, at 8.6 percent, is much lower than the planner’s ideal level of 13.75 percent.
“Texas as a state has a real need for on-peak power right now. Our reserve margins are at historically low levels,” said Hemmeline. “Those low reserve margins are not expected to stay low, and it’s because of solar. […] In aggregate, [solar is] making a very important contribution to customer reliability [and] to resource adequacy, and it is going to be an important part of the portfolio.”
Capacity forecasts from ERCOT suggest solar could serve up to 7.5 percent of peak summer demand by 2024. That's big growth, even if it doesn’t rival the 19 percent of California’s electricity that comes from solar.
“A competitive market” and the corporate rush
The favorable market dynamics mentioned above have pushed prices in Texas low enough to challenge those in solar-friendly states such as Nevada and California.
In December, a municipal utility covering a service area near San Antonio signed a power-purchase agreement that slid under $25 per megawatt-hour. Almost exactly a year earlier, Austin Energy signed a deal estimated to be between $23.50 and $27.25 per megawatt-hour. At the time, analysts called the record-setting Austin price “kind of shocking,” though several projects have now come in under that price.
A project’s design and structure play a major role in setting its price. But Hemmeline said Texas’ strong fundamentals are helping the state achieve highly competitive prices.
“It’s a competitive market; it’s an energy-only market,” said Hemmeline. “That just drives lower prices across the board for all fuel types. Solar has to compete with everyone else. […] Any transaction that happens is fundamentally an economic deal.”
Though Lasher describes wind as an “established technology” in ERCOT, solar may soon erode its edge. According to WoodMac, solar in Texas will undercut wind pricing by 2024.
Recent announcements indicate cost-conscious offtakers like the prospects for solar in Texas. In the last several months, Starbucks, Anheuser-Busch, Facebook and most recently Mondelez International — a food company that owns brands including Oreo and Toblerone — signed onto projects in the state.
The latest deal, between Mondelez and Enel Green Power, is also the largest, at 497 megawatts. It’s also the first renewable power-purchase agreement (PPA) Mondelez has signed in the U.S.
Facebook’s deal, in West Texas, is also novel: It’s the first time the tech company has invested directly in a renewable project.
Solar projects are now even pairing up with what is arguably Texas’ most famous industry: fossil fuels. Though Facebook said it will use most of the renewable energy credits from the project, Shell also signed onto a 12-year PPA to support its activities in Texas’ Permian Basin. The company produces 145,000 barrels of oil a day there.
“Sometimes resiliency of electricity in the Permian isn’t as strong as it could be or should be. So, any opportunity to enhance the resiliency of the supply of electricity and robustness of the supply of electricity is a good outcome,” Glenn Wright, president of Shell Energy North America, told Greentech Media, speaking generally about pairing solar with oil and gas exploration. “It’s part of the solution; it isn’t the whole solution…to addressing resiliency.”
ExxonMobil, too, has invested in Texas wind and solar to support oil operations in West Texas. While that use of renewables may not excite environmental advocates, it does bring Texas’ energy story full circle, uniting the incumbent industry with the new.
And when it comes to corporate deals more broadly, Hemmeline sees more on the horizon.
“There’s a lot of company activity, a lot of projects, and a lot of interest and a lot more to come,” said Hemmeline. “We’ve always had the potential and now we are really delivering.”
