The Public Utility Commission of Texas is allegedly responding to the issue of reliability among renewable energy projects by instituting a $3.6 billion electricity tax on Texans through an Operating Reserve Demand Curve (ORDC) administrative cost, according to a new Energy Alliance study.
“The state Legislature has approved renewable energy standards for Texas,” said Dr. Andrew Kleit, professor of Energy and Environmental Economics at Penn State University. “They set requirements for various wind and solar generation and they require subsidies, which go to ratepayers in the form of their bills.”
Renewable energy suppliers have received $19.4 million in subsidies in Texas since 2006, resulting in favorable and sometimes negative prices charged by renewable suppliers to gain market share, according to the Energy Alliance study.
Associate Professor Michael Giberson
| Texas Tech
“They naturally crowd out subsidized generation and the question with renewable generation is how reliable it is because it's not dispatchable,” Kleit told the Lone Star Standard. “If the wind doesn't blow, there's nothing you can do to get the windmill to spin faster.”
In August, it was widely reported that unreliability may have contributed to blackouts in California, which has more aggressive, renewable targets.
“The lack of reliability has to do with the fact that renewable generators are dependent upon weather conditions,” Kleit said.
As previously reported in the Texas Business Coalition, the Operating Reserve Demand Curve (ORDC) is a response by regulators to the alleged unreliability of renewable energy, which allows for artificial increases to the electricity costs. For example, the ORDC in 2019 added $3.6 billion to the cost of wholesale electricity, according to Energy Alliance data.
“It operates as an opening for subsidies that wasn’t there before,” Robert Michaels, an energy economist and former professor at Cal State Fullerton, told the Lone Star Standard. “The ORDC is one way of getting something without having a really big intervention to force reliability. In other words, the ORDC is reasonably the least harmful intervention.”
The so-called “tax” on increased electricity for consumers is meant to address the issue of a decrease in the reserve margin. However, experts say it’s the growth of power itself that’s causing the decline.
“It takes some of the market away from other kinds of power plants that would be more reliable, which the ORDC is addressing," Michael Giberson, an associate professor at Texas Tech University’s Rawls College of Business, told the Lone Star Standard. "We've got a lot of power plants built because of the subsidies and they do push downward on prices somewhat, but the much bigger factor over the last couple of years has just been the low price of natural gas.”
Issues around lack of reliability generally emerge when there is not enough physical supply in the ground, when the sun doesn't shine or the wind doesn't blow, according to Kleit.
“Subsidies for renewable power exacerbate the problem by replacing dispatchable power from natural gas plants in Texas with wind and solar plants, which are are not dispatchable,” he said.
Although power is required by law to be reliable, Michaels alleges that the core of the problem is that power is not being sold at its true cost.
“In any capitalist system, unless things like power cover their full costs, there's going to be distortions,” he said. “There's going to be overage and too much in the way of renewable intermittent capacity that comes into being, which has effects on consumers of power and it has effects on the producers of power, as far as their desire to invest and doing so in the future.”
In addition to consumers being upset when the air conditioner doesn’t work due to power outages, unreliability typically is absorbed into the consumer’s basic energy bill.
“From the consumer's point of view, there are two problems,” said Kleit. “One is the subsidies for renewable energy. The second is the increase in the operational reserve demand curve, which increases the price paid for reserve power, which in turn increases the price paid for energy.”
