texas and future energy needs

The world’s energy mix is undergoing a slow but very real transitional period as energy planners seek to incorporate renewable energies into existing infrastructures at ever increasing rates.  As a way to provide a framework for what to expect over the next twenty years, the Texas Clean Energy Coalition (TCEC), in conjunction with the Mitchell Foundation and economists at The Brattle Group, developed a study called Exploring Natural Gas and Renewables in ERCOT Part II: Future Generation Scenarios for Texas, to test energy models based on the best current information regarding energy markets, electric grids, and government policy.

TCEC concluded that ERCOT (Electric Reliability Council of Texas) power systems are “very likely to combine substantial amounts of both renewable energy and gas-fired power, and together can provide all new generation.”

“The economic and environmental attractiveness of these electricity sources, the strong Texas resource base, and the evolution of power markets and systems all point to these energy options as the likely foundation of all new supplies to the ERCOT system in the next several decades ahead.”

While these results are bullish for natural gas and renewables, there is a great deal of information to parse in order to come to an accurate conclusion of where our energy future lies.

Study
The analysis was conducted by simulating the ERCOT Expansion Cycle through 2032 using six likely scenarios:

  • Reference case without a required reserve margin (no change)
  • Reference case w/ a required reserve margin (additional capacity i.e. energy insurance)
  • High Gas Prices (4% rise/year)
  • High Gas Prices and Low Renewable Costs
  • Moderate Federal Carbon Rule (50% CCS)
  • Stronger Federal Carbon Rule (90% CCS)

The scenarios were tested using data on generating units and fuel prices primarily from ERCOT, the U.S. Energy Information Administration and the Electric Power Research Institute. These inputs were then analyzed using two models, Xpand, which focused on market-driven decisions and cost-effectiveness, and PSO (Power Systems Optimizer), which looked to find the most reliable and efficient method of operation. Each model is then re-solved to determine the most profitable set of system additions.

Some assumptions were made (no major technological breakthroughs; energy storage tech will not be large-scale by 2032) and other factors were ignored (gas price uncertainty, unique impacts of rooftop or community-scale PV, co-locating PV and wind through CREZ lines). The models also did not incorporate risk-aversion, which the researchers admit, “creates a bias in our results in favor of greater natural gas plant additions than would be the case in a market where developers are significantly risk-averse.”

Their cost assumption for renewables during this period range from over $3,500/MWh for solar and $2,300/MWh for wind in 2012, to $1,300/MWh and $1,500/MWh respectively, in 2032. TCEC noted they took a conservative approach to renewable projections, while assuming that the Texas Renewable Standard Portfolio (RPS) rules - focused on the proportion of renewable energy required - will not change through 2032.

To keep the study as accurate as possible, it incorporates the developers’ own predictions of how fuel and technology costs will change, how ERCOT market rules will change and their effect on prices, how environmental or tax rules might change, and other factors that influence their predicted revenues.

Results
The six results provided a few surprises when it comes to what our energy landscape will look like over the next two decades. From what can be seen, the “less likely” scenarios showed a business-as-usual approach, but are really only meant as control models as opposed to realistic options.

With no reserve requirement, capacity is greatly increased (along with carbon emissions) and with little growth in renewables until after 2028. When putting in place a reserve requirement, additional capacity is made available to market, but only due to older plants continuing operation. This has a profound negative effect on diversification of energy sources until after 2032, leaving renewables with just 8% of the market up to that point.

When implementing high gas prices (4% rise/year) with no reserve requirement, results show a significant reduction in the economic attractiveness of natural gas, serving to boost wind and solar installations. In this scenario, renewable supplies 25% of energy by 2028, while gas provides 29.7%.

The high gas prices and low renewable cost model brings the highest renewable capacity (up to this point) adding 23.8 GW of wind and PV by 2032. Among gas-fired plants, it was noted that nearly all future additions are likely to be combined-cycle gas turbines, due to their efficiency and flexibility.  It’s easy to envision a scenario of rising natural gas prices when you consider the price impact of potential future natural gas exports.

The addition of a moderate federal carbon rule (50% CCS) to this high gas/low renewable environment shows an energy grid strikingly similar to the no reserve requirement case, but with relatively large reductions in carbon emissions. The resulting lack of diversification in energy sources within this model is mainly due to the carbon rule being low enough to keep from forcing the retirement of Texas coal plants, who are still able to operate profitably.

A stronger federal carbon rule (90% CCS), on the other hand, would have major ramifications within the Texas energy grid. Being required to capture 90% of CO2 output, the vast majority of ERCOT coal plants would retire in 2025. In place of the 30% capacity that coal used to hold, energy will rapidly shift to natural gas, clean coal and renewables, with 22 GW of wind added, along with 8 GW of solar by 2029.

This makes renewables the provider of over 43% of Texas electricity (6x that of the reference model). Although, in this scenario, natural gas must carry energy demand in the medium term, and provide 50% of total energy through 2025, before falling back to 25% in 2032.

TCEC notes their models indicate that this level of variable generation can be integrated with full reliability. In all, the strong carbon rule would allow nat. gas and renewables to account for 85.6% of total generation, the highest of any scenario.

Highlights
The numbers produced in a high gas/low renewable price scenario with a strong carbon rule are likely the most surprising results. According to their charts (Figure IV-13), there is less than a $10 rise in wholesale power prices from the historical average ($70 as opposed to the expected $61). On the other end of the spectrum, the reference/no reserve requirements hit 2032 with a cost/kWh of $48.

In terms of the broader environment, the reference model would result in 218 million metric tonnes of CO2 released into the atmosphere, whereas strong federal limits would bring that number down to 60 million metric tonnes in 2032 (a reduction of 60% from 2012 levels). With current climate models predicting adverse effects from greenhouse emissions, this statistic is a vital one.

Conclusion
The TCEC study offers a pragmatic assessment of the future Texas energy climate, proving that carbon sequestration rules and other environmental safeguards would not have a major effect on the ability of our energy systems to operate efficiently. Even with a very conservative estimate on cost/kWh for renewables, and the lack of consideration for technological breakthroughs (which are likely, to a certain extent), the models consistently showed a natural gas and renewable-dominated market through the mid-21st Century.

Even so, there are a few things readers should note before coming to their own conclusions. First, this study was underwritten by the Mitchell Foundation, whose patriarch, George Mitchell, was heavily invested in natural gas. In fact, he is credited with inventing the process of hydraulic fracturing, the profitable, but controversial shale oil extraction technique that has become a major point of contention among environmentalists and the Oil & Gas industry. Consequently, the study did not touch on the environmental impacts of natural gas, which is greater than many believe. This could present a minor conflict-of-interest, but nothing great enough to skew the results. Lastly, the study also fails to take into account the rise in popularity of Nuclear, a strong alternative energy that will likely play a larger role in power grids going forward.

A relative bias for natural gas aside, the study uses an extensive number of reliable inputs to offer important statistical insight into what we should expect over the next twenty years, and in doing so, giving us the ability to create the right power grid structure during an age of energy uncertainty.

Photo Credit: Texas and Energy Needs/shutterstock