by Kelso King, King Energy Consulting
The Changing Texas Retail Market
A panel moderated by former PUCT chairman Don Nelson, addressed issues associated with the ERCOT retail market. Panelists first addressed the impact of recent consolidations among retail providers. Bruce Chung, Vice President of Strategy, Mergers and Acquisitions for NRG Energy, suggested there was no market manipulation in ERCOT due to its low barriers to entry and tremendous transparency. He believed retailers can survive without owning generation, if they have prudent risk management. However, he suggested that they will have to work hard to deliver what customers are looking for.
Panelists were asked about the expansion of competition in Texas, such as Lubbock becoming part of ERCOT. Laura Manz, Navigant, suggested that the problem with introducing competition into non-competitive areas is that there is no guarantee rates will go down because rates are related to the value that is provided. Jeff Nadalo, General Counsel for, reported that his company only has self-generation at its locations in competitive areas. Buc-ee’s has tried to put self-generation in municipal service areas, and found initial enthusiasm, but was ultimately prevented by bureaucracy.
Chairman Nelson suggested that there are always winners and losers in competitive markets.
Mr. Nadalo explained that Buc-ee’s is all about customer experience, especially being open for busines. He noted that in the aftermath of Hurricane Harvey some of their facilities were able to host first responders, emergency operations and the National Guard due to their on-site backup generation. Mr. Nadalo suggested that customers now have a different level of expectation in retail, expecting systems to always be working, easier and faster, with delivery.
Chris Hendrix, CEO of Demand Control 2, suggested that customers want to protect themselves from high prices. He believed attempts to avoid 4CP transmission cost allocation is a game but not gaming the system, just responding to a price signal. He noted that customer behavior may shift the occurrence of the 4CP, shifting it to another day.
Chairman Nelson asked what is driving the growing trend of corporations buying renewables. Mr. Hendrix suggested that it was due to Boards, customers, and employee’s desire to meet sustainability goals.
Mr. Chung stated that large corporations can now buy long-term renewable power at a reasonable cost. He added that it will be interesting to see what happens as existing tax credits are eliminated in the future. He added that NRG worked with Cisco, a mid-size corporation, to help them purchase renewable power. Ms. Manz noted that customers have not yet seen the bill for flexibility and firming.
Chairman Nelson asked if Buc-ee’s planned to install fast EV charging, adding that it is easy to spend 40 minutes there. Mr. Nadalo reported that Buc-ee’s is now instilling this capability in all of its new facilities.
Mr. Hendrix noted that Walmart has already installed a significant amount of EV charging, but noted that there are challenges with how to meter it and how to have enough capacity, adding that 10 fast chargers require more power than an entire Walmart store.
Chairman Nelson suggested that retail choice is “going backward” in some states. She asked panelists to discuss why that is happening and how to fight it.
Mr. Hendrix believed that, in states where retail choice is being repealed, residential customers have not gotten away from their default provider.
Ms. Manz added that the implementation of a Price to Beat, headroom, etc. in Texas caused incumbents’ advantage to go away.
Mr. Hendrix noted that, in some cases, the retail industry had not helped itself as well as instances where there had been a need for better customer protection. He suggested that monopolies are good for monopolists and that utilities in Nevada spent huge amounts of money fighting competition. Ms. Manz added that Nevada customers are trying to buy their way off the system.
Mr. Hendrix added that in some states industrial customers have gotten special deals that retained them. He noted that in Florida, which he suggested is similarly situated to Texas, incumbent utilities were wooing trade associations to gain their support in fighting competition.
Chairman Nelson noted that industrial customers played a big part in advancing competition in Texas.
Regarding the value of the Texas PUC’s Power to Choose website, Mr. Chung suggested that it is adequate for price-only shoppers but may not be sufficient for more sophisticated customers. Mr. Nadalo suggested that it would be helpful to apply meter data to Power to Choose offers, in order to estimate bills for comparison purposes. Mr. Hendrix believed this could easily be done with existing Smart Meter Texas data.
Powering the Permian Basin
Stephen Robertson, Executive Vice President of the Permian Basin Petroleum Association, moderated a group of panelists discussing issues associated with the explosive load growth in the oil and gas producing areas of West Texas’ Permian basin.
Johnny Carlock, Pioneer Natural Resources, explained that his company does not want to have to supply its own power if grid capacity is available. He noted that the biggest challenge is having capacity available when the load is ready. His company’s planning horizon is 12-18 months but the transmission construction process takes 4-6 years.
Spivey Paup, Development Director for Recurrent Energy, suggested that his company’s challenge is to not outpace the transmission buildout. Congestion is also a challenge, adding that they want power settled at the hub, not the busbar. Mr. Paup noted that some developers won’t deal with solar in the Permian area due to “legacy” issues, adding that there is conflict between solar developers and mineral rights owners, who have a right to use the surface to access their operations.
Woody Rickerson, ERCOT VP of Grid Planning and Operations, agreed that the transmission forecast and planning process takes 4-5 years, adding that load doesn’t fit that model anymore. He noted that ERCOT is working with loads and Transmission and Distribution Service Provider (TDSPs) to adapt in two ways: 1) to shorten the four-five-year process, and 2) to be more creative in their load forecasting. He concluded that ERCOT’s challenge is to forecast and meet load growth.
Ellen Buck, Vice President of Business and Operation Services for Oncor, noted that ERCOT’s Far West weather zone is only 6% of ERCOT load but covers a much greater percentage of the state’s area. She noted that load in this area is 10 times what it was and is still growing. Ms. Buck noted that communication and coordination improved over the last five years, beginning with each party educating the other on its industry.
Mr. Rickerson suggested that, with more inverter-based generation coming, new things will be required. Parties are familiar with thermal constraints but, with the new types of generation, there will also be dynamic constraints so there will need to be new operating rules.
Mr. Carlock noted that transmission planners cannot always use historical markers to estimate future load, adding that there are numerous Drilled Uncompleted Wells (DUCs) that are not currently active but can be producing within 30 days.
Panelists discussed the possibility of local generation being added in the Permian Basin. Mr. Rickerson explained that ERCOT has a growing recognition of micro-grids. Although ERCOT is only aware of 75 MW of self-generation, it affects ERCOT planning. He noted that ERCOT will need additional knowledge, about solar generation for example, that will be critical for operating the grid.
Mr. Paup noted that solar assets can generate power for 30-35 years, adding that it is easy for oil and gas companies to operate and maintain but they have a hard time with a 30 year commitment.
Mr. Carlock noted that his company is not using any renewables at this time, primarily due to conflicting surface use. He also noted that his load profiles are pretty flat over 24 hours and would need some type of storage to utilize wind and solar.
Mr. Rickerson added that renewables may be a better option in areas with less transmission capability.
Ms. Buck suggested that renewables could be a temporary solution while consumers were waiting for grid power and this could also benefit the grid.
Mr. Rickerson explained that the Permian Basin has unique limitations, such as constraints on imports during certain times of the day but on exports at other times. He noted that a lot of transmission is being built in West Texas, which necessitates outages for connections, that also leads to congestion. He noted that there was a recent example of congestion West Texas resulting from lower than usual solar output.
Mr. Paup noted that his company’s solar projects usually take three years to finish, with 1-1/2 to 2 years for the interconnection process and another 1-1/2 years for the buildout. He asserted that energy storage can be a viable solution but that ERCOT is not as good at accommodating storage as some other markets.
Mr. Rickerson noted that the location of load is also important, that it makes a significant difference whether, for example, 500 MW of load is spread out or concentrated in a single location. He concluded the discussion by noting that energy storage is a game-changer that will require a lot of work to be done in the next two years and beyond.
Solar Development in Texas
The GCPA conference’s final panel discussed Texas’ solar potential, who is building solar and why, how financial arrangements have changed, how storage will impact solar, and how much of the current solar interconnection queue will ultimately get built.
Moderator Charlie Hemelline, Executive Director of the Texas Solar Power Association, noted that Texas has the largest solar potential of any state and currently has 8,600 MW of solar with signed interconnection agreements.
Caitlin Smith, Vice President of AB Power Advisors, noted that an advantage of solar over wind is that solar can be built anywhere, adding that AB tends to build closer to load, avoiding transmission congestion in West Texas. She suggested that the longer queue in Texas is due to Texas’ lower standards for getting in the queue.
Grace McNamara, Director of Business Development for 174 Power Global, noted there is better insolation in West Texas than in East Texas but agreed that transmission issues in West Texas are challenging. She suggested that ERCOT’s energy-only market disincents traditional generation.
Mr. Hemmeline noted that between 2010 and 2015 most solar in Texas was installed by large municipal utilities, with 50 to 100 MW solar plants. Noting significantly increase growth in the last 12 months, he asked the panelists who is buying?
Ms. Smith replied that it is still mostly public power but also an increasing amount of large commercial and industrial customers. Clay Butler, CEO of 7X Energy, noted a “large pivot” in the last 12-18 months from retailers, with large corporations wanting to do PPAs and less activity from large municipalities. He noted that demand for solar is not the issue but rather ensuring a high-quality project.
Ms. McNamara noted that the demand for solar has been supported by the great business environment in Texas, adding that corporations are the driving market for offtakes, which means political change will not take it away. She noted that the market is also being driven by the fact that solar is now a viable, low-cost energy option.
Panelists discussed aggregated procurement, with Mr. Butler agreeing that this works and one of their first projects was for Brazos Electric Cooperative, who was representing seven other co-ops. He noted that commercial and industrial customers are also aggregating in order to get economies of scale.
Ms. McNamara reported that a shortening of deal terms has occurred in the last 12-18 months and they are trying to get customers comfortable with longer retail terms.
Mr. Butler stated that 10-12 year terms have become the new normal. He noted that the industry is facing supply-side constraints and they are now purchasing equipment two years in advance. He noted that the biggest issue in ERCOT’s curtailment risk.
Ms. McNamara predicted greater deployment of bifacial modules and co-locating storage.
Mr. Butler noted that there are 600-800 MW of bifacial solar facilities under construction and, with a 3-5% increase in production, he believes most future projects will be bifacial.
Mr. Butler noted that 7X Energy wanted to create a solar product that is more like a traditional product and they are now selling a fixed shape product. They prefer this because it is a commodity that can be moved and is more amenable to the ERCOT market.
Ms. McNamara suggested that storage will allow solar to better fit customer needs, adding that it helps to be able to be flexible. She believed that storage will begin being deployed any day now and noted that a recent client was more actually interested in storage the solar.
Mr. Butler suggested that the value it adds will determine storage deployment. He expects a slow build and then a complete switchover to all solar plus storage in a few years.
Ms. McNamara suggested that storage will provide a good financial opportunity for solar-supplied ancillary services.
Concerning the impact of tariffs on the industry, Mr. Butler noted that there are three tariffs on the module side that have increased cost, from an expected $0.25 each to now being $0.35-$0.40 per module. He noted that most modules produced for U.S. demand are built in Southeast Asia but that the rest of the world’s supply comes from China. Noting that a supply crunch has resulted from questions regarding the tariffs, he added that “nothing is stable about the solar industry.”
Mr. Hemmeline described this situation as the “solar coaster,” adding that, in addition to policy changes, there is also the push/pull between supply and demand.
Ms. McNamara noted that the challenge for solar outside of ERCOT, such as the El Paso area, is transmission. She added that Midcontinent Independent System Operator, Inc. (MISO) is the riskiest market for solar, with a 4-5 year process, requiring more money just to get into the queue.
Panelists concluded with a discussion of how much of the current solar queue will actually get built. Mr. Butler believed that over half of the queue is a “shotgun” approach, essentially including every potential project, but that maybe only 20% is viable due to transmission issues. He noted that more future solar will be built in North and South Texas than West after the initial deployment.
Ms. Smith estimated that 1/3 to 1/2 of the queue will get built, agreeing that she also expects more to be outside of the West zone.
Mr. Hemmeline agreed, believing that project development would trade solar quality for cheaper land and better transmission access.
Ms. McNamara estimated that approximately half of the current queue would ultimately get built.
Mr. Butler expected the step down of the investment tax credit to have a major impact on how much of the queue gets built.