'Mission accomplished?' Inside the battle over Texas renewable energy incentives

Supporters of an RPS repeal bill say its work is done, but others say there's still room to grow

"Everything's big in Texas" may usually refer to steaks, trucks and cowboy hats, but during this legislative session the phrase applies to energy politics as well.

Clean energy advocates say it's a big puzzle as to why legislators are pushing to roll back the state's successful renewable energy incentives. 

Senate Bill 931, sponsored by Republican Senator and powerful Chair of the Natural Resources and Economic Development Committee Troy Fraser, was approved by the Texas Senate late last month. If passed by the House, the bill would prematurely terminate a $7 billion renewables transmission build-out and end the state’s renewables mandate 10 years before it is set to expire. It's a case of "mission accomplished," he told the Dallas Morning News.

“The [renewable portfolio standard (RPS)] has been sitting on the books and not being used for 10 years, so we decided it is an unneeded law and it is time to declare victory and take it off the books,” Senator Fraser told Utility Dive. “We are doing the same thing with CREZ. We are declaring this wave of expansion complete. We have spent $7 billion and have 50% excess capacity.”

“This should not be interpreted to mean wind and solar are not welcome in Texas,” the lawmaker said. “We want people to come here and build. We have transmission lines that can get their product to market and we are open for business.”

Senator Fraser co-sponsored the original 1999 bills that deregulated the Texas electricity market and established the renewables mandate. He also shepherded the current mandate, designated to be in place through 2025, through the legislature. Texas met that renewables mandate in 2005, thanks to rapid growth in the wind sector.

“There were two things that drove the market, the federal subsidy and what we did to build the CREZ lines,” Fraser said.

Under Governor Rick Perry, Texas designated competitive renewable energy zones (CREZ), largely in West Texas and the Panhandle, and committed $7 billion to build transmission to deliver wind developed there to metropolitan load centers.

“It was basically build it and they will come," Fraser said. "And they came in droves."

Texas now has over 14,000 MW of wind, but Fraser said the CREZ lines still have ample excess carrying capacity.

Renewable energy credits (RECs) that electricity marketers are required to purchase from generators to demonstrate RPS compliance were "not the driver" of the growth in renewables, Fraser said. Instead, the federal production tax credit (PTC) of $0.023 per kWh, along with the new transmission, were what stimulated the market. 

“[The RECs] are still on the books, but are virtually without value.”


Controversy over the renewables mandate

Terminating the mandate, or RPS, 10 years ahead of schedule could disrupt $40 million per year in payments to wind farms that were factored into financing at construction, said Environment Texas Director Luke Metzger.

“SB 931 is bad faith," he said. "The legislature is pulling the rug out from under the wind industry just as it is getting going. And when solar is just beginning to get hot, we should be fanning the flames, not trying to put them out.”

Metzger believes renewables are being unfairly targeted.

“A report of the Texas Comptroller of Public Accounts estimated that 99.6% of all state subsidies go to oil and gas, mostly as tax exemptions, and they continue,” he said. “The REC market is a small piece of the overall financing of renewables, but with the deck so clearly stacked in favor of fossil fuels, each program is critical.”

“The REC program is not mentioned in any way in this legislation,” Senator Fraser responded. “It came from our [Public Utilities Commission of Texas (PUCT)] in their Scope of Competition report. I am carrying the legislation for the commission. The first question I asked them is ‘What do we do with the RECs?’ They said the REC program will stay in place and won’t be impacted.”

Because Texas law requires retail electricity providers to purchase them, “RECs are an additional subsidy to renewable generators,” ERCOT reported in its comment to the EPA on the Clean Power Plan. “However, current REC prices in ERCOT are very low (less than $1 per REC/MWh) and therefore provide insignificant subsidies.”

"What legislators seem to not understand is that the RPS created a demand that was expected to continue to 2025,” explained Wind Coalition Executive Director Jeff Clark. “If SB 931 passes, the REC market will still exist. People will still be able to sell RECs. But it removes, by government fiat, the mandatory portion of market demand. That will reduce the value of the RECs.”

The RPS was an economic tool to drive renewables growth and, partially in response to the tool, Texas has had $28 billion in private capital investment since 2008, Clark said.

Mandatory RECs could be one-half to two-thirds of the total REC market, which also includes voluntary RECS. But if demand falls, it affects the price per MWh across the board, Clark said. And because power prices in Texas are very competitive, every bit of revenue is important to developers.

“For some projects in Texas, RECs represent 5% or more of the revenue. Multiply that by 14,000 MW of wind over the next ten years. That is big money,” Clark said.

Senator Fraser sees the impact of his bill much differently.

The REC system and the REC value is not impacted at all,” he insisted. “The REC value is not very high now but the RECs will hold their value and they are tradable … All we did was remove the RPS standard because it wasn’t being used.”

“If the bill doesn’t do anything, why is the renewables community screaming?” Clark asked. “As the Dallas Morning News editorial pointed out, there is no good reason to do this.”

The CREZ lines

As originally written, SB 931 terminated all further CREZ build-out. “We think we will want to do more CREZ projects, but the legislature wants to be involved in the decision making,” Fraser explained.

But in response to concerns from Panhandle wind developers, Fraser accepted an amendment. “It allows the Panhandle CREZ line to be completed out to a $2 billion project, and it allows lines to be completed to any project on the books by a specified date,” he said.

Here again, clean energy advocates take issue with the legislation.

“We think the entire bill is ill-advised, but as amended does now allow for the CREZ lines to be built out,” said Environmental Defense Fund Texas Clean Energy Director John Hall. “The transmission projects will be able to go forward and that is really important.”

But the $130 million portion that SB 931 greenlights leaves unbuilt approximately 2,000 MW of carrying capacity in the original design.

“We don’t think the CREZ build out should go on forever but we do think they ought to complete what they identified would be developed,” Clark said. “Beyond that, if the Senator says no more CREZ lines, I agree. If he says the RPS should go away after 2025 like investors have always planned on, we’re on the same page."

"I am struggling with why it is so important to do all this right now,” he said.


Hidden agendas?

As they struggle to understand the motivation behind Fraser's bill, several observers in Texas suggested that the proposal has the fingerprints of the American Legislative Exchange Council, a pro-business advocacy group that produces model legislation (like this potential bill to repeal an RPS standard) for conservative lawmakers to implement across the country.

In the past two years, at least 22 of the 29 state renewable portfolio standards across the nation came under attack. Most failed, but multiple reports from liberal advocacy groups and research organizations suggest that many of the bills to repeal RPS standard were based on ALEC models.

“ALEC recommended repealing RPS's, and scared Republican legislators are doing everything they can to please right wing supporters by filing bills that mimic ALEC legislation,” said Public Citizen Texas Director Tom Smith. Metzger said that the bill fits the ALEC mold in some ways. 

Fraser says the speculation is way off-base.

“I have had zero communication with ALEC in 7 to 8 years,” Fraser said. “Assuming this has anything to do with ALEC is ridiculous. There is no communication with them.”

But when Senator Fraser said he is acting at the PUCT’s request, it changed the question for clean energy advocates. In a memo to Texas regulators, Public Utility Commission of Texas Chair Donna Nelson wrote late last year that wind and solar are now “mature industries” that no longer need federal tax credits and they should contribute to new transmission infrastructure costs.

Texas Renewable Energy Industries Association Director Russel Smith called Nelson’s memo to the other PUC commissioners part of the “full-court press nationwide” to limit the growth of renewables.

As with Senator Fraser, there is no evidence that Chair Nelson has acted specifically on behalf of ALEC or any other organization. But the whole ordeal still has renewables advocates scratching their heads, even if they don't perceive any conspiring. 

“I know Senator Fraser and I know he is trying to set good policy,” Clark said. “I don’t think there is any ill-intent here. But this will have serious negative effect on renewables in Texas. And what compelling reason is there to do this? It’s a puzzle.”

Filed Under: Generation Transmission & Distribution Solar & Renewables Regulation & Policy
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