|Does Texas have a renewables mandate?||Yes|
|Does Texas have a state mandate or target for storage?||No|
|Does Texas offer financial incentives for energy storage development?||No|
|Does Texas have a policy for the strategic deployment of Non-Wires Alternatives or Distributed Energy Resources to defer, mitigate, or obviate need for certain T&D investments?||No|
|Does Texas have a policy addressing multiple use applications for storage?||No|
|Does Texas have a policy on utility ownership of storage assets?||No|
|Does Texas allow or mandate the inclusion of energy storage in utility IRPs?||Yes|
|Has Texas modified its permitting or interconnection requirements specific to energy storage?||No|
|Does Texas allow customer-sited storage to be eligible for net metering compensation?||No|
|Has Texas revised its rate structures to drive adoption of behind-the-meter storage?||Unclear|
|Approximate development of storage capacity in Texas.||Approximately 100 MW of energy storage has been developed on the Texas grid, a small amount within the ERCOT system’s generating capacity of nearly 80,000 MW.|
As has been widely documented across various industries, Texas has a long history of doing things its own way. However, far from being rendered to an outlier status, what occurs in Texas has impact across the rest of the nation. In fact, just as California often stimulates trends that are adopted by other states, decisions made in Texas can have ripple effects elsewhere as well. The sheer size of the state makes this an inevitability. Texas has the second-largest population and the second-largest economy in the nation after California.
The energy sector in Texas is both inherently unique and capable of setting important policy precedents that could be modeled by other states. That is why the rapidly developing market for distributed energy resources (DERs), renewables and energy storage in Texas deserves attention and scrutiny by other jurisdictions. Assessing how energy storage policy is developing in Texas must be based upon an understanding of what makes the Lone Star State different from the other 49 U.S. states, and how this creates unique challenges and opportunities for the energy storage sector.
For starters, Texas is a behemoth when it comes to producing energy. In fact, Texas generates almost twice as much as Florida, the second-highest electricity producing state. Historically, like many other states, in-state electricity generation in Texas has relied heavily on coal and natural gas. This dynamic has been fundamentally changing over the last decade, as with other states, as falling prices have begun to create grid parity between renewable resources and more traditional forms of generation. It is important to understand that development of alternative forms of electricity generation in Texas has been driven by economic factors rather than state polices or mandates.
It is also important to be clear on the kinds of renewables that have gained momentum in Texas. In Texas, renewables development has mostly been concentrated in wind power since 2010 when the first utility-scale generation wind farm in the state was constructed. Today, renewables resources (again, primarily wind) contribute more than one-sixth of the state’s generation. Solar PV capacity in Texas is also increasing rapidly, due in large part to the falling costs of solar and the increased capacity potential afforded through improved transmission access across the state.
The ever-increasing use of renewables is perhaps where comparisons between Texas and other states end. In most every other way, Texas is unique and comparisons to other states are problematic. Particularly since 1999, when the state’s energy sector was deregulated and new market principles took hold, Texas has followed its own path forward in the clean energy revolution that is transforming the energy industry.
Looking back to 1999, the Texas Legislature developed Senate Bill 7, which required the creation of a retail competition framework in the state. The retail market was officially opened on January 1, 2002. In the process, the Texas power sector was split into three separate segments: generation providers (those entities that generate electricity); T&D utilities (the entities that maintain infrastructure and deliver power to customers); and retail companies (the entities that sell electricity directly to customers). The competitive market in Texas covers approximately 70 percent of the state (the remaining 30 percent is discussed below).
The Electric Reliability Council of Texas (ERCOT) operates the competitive, partially deregulated
electric market in Texas, has the responsibility of operating the competitive market in the state and maintaining reliability and the flow of electricity from the Texas Interconnect. Ninety percent of the Texas electricity load is provided by ERCOT. The most distinguishing factor of ERCOT is that it does not interconnect with the neighboring Western Electricity Coordinating Council (WECC) or the Southwest Power Pool (SPP) grids and in fact Texas is the only state within the 48 contiguous U.S. states that has its own stand-alone electricity grid.
Because of the fact that ERCOT operates rather like an island unto itself and is not connected to other transmission grids, ERCOT does not fall under the direct jurisdiction of the Federal Energy Regulatory Commission (FERC), as compared to WECC, SPP, or other regional transmission organizations (RTOs). ERCOT is primarily regulated by the Public Utility Commission of Texas (PUCT) and the Texas
Legislature, not by federal authorities. However, for federal reliability standards, ERCOT is accountable to the Texas Reliability Entity Inc., the North American Electric Reliability Corporation (NERC) and FERC and is certainly influenced by policy decisions that take place outside of its borders.
Some parts of Texas—El Paso, the upper Panhandle, and part of east Texas—are not included in ERCOT. There are also municipally owned, vertically integrated utilities throughout Texas, such as Austin and San Antonio, along with electric cooperatives. Utilities outside of the ERCOT region but still within Texas remain vertically integrated and may own generation and T&D assets. These utilities include El Paso Electric, Southwestern Public Service Company, Southwestern Electric Power Company, and Entergy Texas.
Nevertheless, clearly ERCOT clearly is among the primary entities that is charge of developing policies and procedures that would enable or obstruct the interconnection of energy storage resources. The challenge is that ERCOT was originally designed to accommodate large, traditional power plants, interconnected to the transmission grid. originally designed to accommodate large, traditional power plants interconnected to the transmission grid. The market was constructed before current DERs technologies were widely available. Therefore, DERs have had a difficult time participating in the market. With its focus on large-scale projects and no incentive programs to enable the development of renewables or DERs, there has been comparatively little opportunity for energy storage to develop in Texas. This is now changing as ERCOT and the PUCT are recognizing that the inclusion of DERs in the market is inevitable, and even desirable, and are starting to explore how to better accommodate DERs in their market-based system.
However, the legacy policies in the state remain very problematic. For starters, ERCOT does not manage distribution grid systems. This is the responsibility of the T&D utilities, but due to the legislation that sparked the deregulation of the Texas energy sector, these utilities are restricted from owning any generation assets. Therein lies one of the fundamental challenges that energy storage faces in Texas, as by law energy storage is still defined as a generation asset. As with other states, policies developed in Texas two decades ago did not (or could not) anticipate the unique role that energy storage would play in the market, and unfortunately these legacy policies create barriers for energy storage that still need to be resolved. This policy conundrum in Texas deserves additional discussion, as it arguably the biggest hurdle that energy storage continues to face in the Lone Star State.
In addition, ERCOT is an “energy-only” market as opposed to a forward capacity market. This means that Texas has no resource adequacy requirement or mandatory reserve margin level, which in other states have provided opportunities for energy storage to be considered in long-term resource plans. In practical terms, this means that in the ERCOT market there has not been an opportunity for a small generator or storage unit to get credit for services unless they register as a Generation Resource, and again T&D utilities have been restricted from owning generation assets so many potential utility storage projects have been rendered “non-starters.”
Moreover, it is currently the case that utilities in Texas are not able to capture the full value of energy storage for ancillary or energy markets. In the very limited circumstances under which a T&D utilities in the competitive markets of Texas can own storage, the storage assets would not be able to participate in the ERCOT wholesale market. Neither merchant investors nor regulated T&D companies can currently capture sufficient benefits to justify investing in storage to maximize ERCOT-wide benefits under the current policy framework in Texas. T&D utilities in non-competitive markets can own storage assets and participate in the ERCOT wholesale market, but there has been very little market participation to date. Without utility contracts to guarantee revenue, energy storage in Texas must compete with convention gas generators in the wholesale market, a challenge that has scared off even the most bullish storage developers.
Utilities such as AEP Texas argue that the law allows utilities to own storage if the goal is reliability. Generators say the law is unclear and have opposed utility ownership of storage based on the negative impact that would occur on wholesale prices.
There may be instances in which a clever ERCOT storage operator will switch between bidding into the ancillary regulation markets one day to arbitraging energy prices another day for maximum revenue potential. In addition, the business case for arbitrage in Texas may improve as more wind and solar comes on line, bringing more negative price events and transmission constraints.
The challenge of earning revenue solely from arbitrage is not unique to Texas. Industry-wide data indicate that there are only a few places in the world that have the required price spreads that make arbitrage economical for an energy storage investment (e.g., some of the Hawaiian Islands). Add to this the lack of available financing for energy storage projects without long-term contracts, and it becomes quite clear why storage has not developed into a robust market in Texas of yet.
However, to date the energy arbitrage and ancillary services use cases in Texas have not been robust enough for storage to truly flourish in ERCOT. Presently, there are just 10 operational stand-alone energy storage projects operating in Texas, but only two are connected to the ERCOT transmission grid. According to ERCOT, these existing storage projects are primarily used for ancillary services.
Despite these challenges, or perhaps as result of them, Texas, meanwhile, has become one of the leaders in grid-scale storage, in part because it can design policies without waiting for the FERC, where a contentious rule-making process for deploying batteries on the grid is underway. To date, early projects have delivered some 89 MW of energy storage into ERCOT’s grid. Another 1,800 MW have entered the interconnection queue with no guarantee that these projects will be build. Of the 89 MW that have been installed, support of ancillary services has been the primary revenue opportunity within the ERCOT region.
Texas regulators and other policymakers in the state are wrestling with broad, first-time issues such as how to treat energy resources that both draw and generate power and more mundane interconnection concerns of how to effectively and efficiently link batteries from wind farms, solar farms and stand-alone storage units to the grid. At the same time, the opportunity that energy storage provides is driving the value of renewables higher.
Compared to other states in which executive leadership (i.e., the state’s governor) has set the template for ambitious renewables, clean energy, or energy storage goals and in many cases campaigned on such a platform—there are many examples to cite, but ones that quickly come to mind are New York, New Mexico, Illinois, and Colorado—this has not been the case in Texas. Gregory Abbott, Texas’ current Republican governor who has been in office since 2015, has not released a comprehensive energy-vision plan that would speak to the state’s higher level clean energy, renewables, or energy. Again, this can be compared against other states whose governors have used the mechanism of executive orders to establish policy that is subsequently to be implemented by state offices. In fairness, the gap of executive directives in Texas precedes the tenure of Gov. Abbott but the end result is the same that Texas does not have an established policy on renewables or clean energy that influences energy storage development.
Under the tenure of Gov. Abbott’s predecessor, Rick Perry (R), natural gas production climbed 50 percent, while oil production soared by 260 percent. However, the growth of the wind industry under Perry's tenure was even more dramatic, growing from only 116 MW of production in 2000 to over 11,000 MW in 2013. As stated previously, the growth of the renewables sector in Texas has been driven primarily by economic forces and market conditions rather than policy directives, however, so it is debatable how much credit the former Gov. Perry should be assigned for the growth of that market. It is true that Rick Perry's administration promoted the rapid growth of transmission infrastructure needed to carry that renewable energy (primarily wind) from its source in the Panhandle and western part of the state to major load centers. In a 2009 speech, Gov. Perry characterized his administration’s strategy as follows: "Texas is the very picture of a state aggressively seeking its future in alternative energy, through incentives and innovation, not mandates and overreaching regulation."
Energy storage deployment in Texas is primarily impacted by existing statute in the state:
In addition, there have been a handful of legislative actions in Texas that have set the landscape for energy storage development in the state, dating back to 1999 when the state’s energy sector was opened to retail competition.
Senate Bill 7 was a transformative piece of legislation that dismantled the existing monopoly system in Texas and opened retail markets to competition. Key components of the legislation were as follows:
The Public Utility Commission of Texas (PUCT) is a state agency that enforced regulation on multiple utilities, including electricity. The PUCT acts as an advocacy organization and ensure that electricity is delivered safely and reliably to the customer. And they also help resolve customer complaints and ensure that customers are treated fairly.
The Public Utility Commission of Texas first adopted rules for the state's renewable energy mandate in 1999 and amended them in 2005 to require that 5,880 megawatts, or about 5 percent of the state's electricity generating capacity, come from renewable sources by 2015 and 10,000 megawatts of renewable capacity by 2025, including 500 megawatts from resources other than wind. Texas surpassed the 2025 goal in 2009, predominantly with wind generating capacity.
One ongoing question that continues to be debated in Texas is whether regulated utilities that provide wires that distribute electricity can invest in battery storage. SB 7, the 2002 that deregulated electricity established competitive markets for retail sales and power generation, classified transmission and distribution as regulated monopolies. To prevent utilities from taking unfair advantage for their monopoly positions, the law prohibited them from entering the competitive markets. At issue is whether batteries, which would send power onto the grid, would put utilities into the generation business and violate state law. That question has come up in the ongoing rate case of the Houston utility CenterPoint Energy, which asked the state Public Utility Commission for permission to install battery technology to handle intermittent voltage losses from solar farms, wind farms and other forms of distributed power.
The PUCT last year opened a rulemaking process asking if transmission and distribution utilities operating within the Electric Reliability Council of Texas market can own energy storage devices. The rulemaking is intended to "resolve infrastructure deficiencies" and consider the impacts of battery storage on wholesale and retail markets. (Control No. 48023). The PUCT opened the docket after American Electric Power Co. Inc. subsidiary AEP Texas Inc. applied to own battery storage systems. Electric vehicle maker Tesla Inc., which is developing utility-scale battery storage technology, supported AEP's proposal, saying in comments to the PUCT that battery storage would support the reliability of the grid.
Transmission and distribution companies argued in comments to the PUCT that the law permits their ownership of battery storage. But opponents, such as retail electric providers and consumers, argued an owner or operator of battery storage devices must register as a power generator.
The commission paused the rulemaking, and in January asked the state legislature for clarification in the law. A final policy on this issue has not been issued as of yet.
Questions that remain before the PUCT include the following:
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