Hello, and welcome to the Texas Tribune trip Cast for Tuesday, September thirtieth, twenty twenty five. I'm Matthew Watkins, editor in chief of the Texas Tribune, and joined as usual by Eleanor Klibanoff Lawn politics reporter.
Hello Eleanor, Hello Matthew. I have no banter for you today.
Well, I think September thirtieth could be government shutdown day. That's right, you know, we'll wait and see end of Also the end.
Of Q three, Yes, yeah, there you go.
Do you have any goals for Q four?
Just no legislative sessions.
No legislative sessions. Yeah, that's my goal too. So let's hope it's our good lawmaker's goal, our governor's goal.
Yes, exactly, exactly. All right, Well, today we are going to talk talk about renewable energy and the grid in Texas, and we are joined by Eric Goff, a Austin based the founder of GoF Policy and Austin based advocacy and advisory firm focused on energy and infrastructure policy. Welcome, Eric, thank you so much for having me. Thank you for being here. Okay, so I want to set this up
just a little bit. We of course, all know, all our listeners know that Texas is the fossil fuels powerhouse in the US, and our state leaders for have a long time been pretty publicly skeptical, if not aggressively opposed to the idea of a transition toward cleaner sources of energy. But a funny thing has happened in the past half decade or so, which is amid all that opposition, Texas has sort of become a renewable energy powerhouse as well,
at least for the United States. A statistic since twenty twenty one, ninety two percent of the power supply capacity that's been added to the grid has come from wind, solar, or batteries, And in twenty twenty four, Texas produced about fifty percent more renewable energy than California, a state that you know, obviously its leaders are much more excited about renewables than Texas. That growth has helped shore up our power grid. You know, energy demand continues to climb in
Texas six percent per year since Winterstorm earned Uri. But it is also you know, you know, the state. It has basically essentially helped the state avoid having this summer a single power conservation notice, which you know, is somewhat rare these days. Of course, a somewhat mild summer helped with that too, but it's been an interesting summer. The legislative session kicked off with a lot of lawmakers filing
bills targeting the renewable industry. The people in the industry breathed a sigh of relief when those bills bills did not pass, and then a couple of weeks later, the big beautiful bill in Congress passed and wiped out a lot of clean energy tax credits and things like that. And so we're going to discuss today the growth of that industry and also what's going to happen to it beyond. And Eric going to start with you, and I want
to look backward before we start forward. Can you just talk a little bit, tell us a little bit about how this renewable industry has grown so much in Texas despite the fact that there's been, you know, some vocal opposition from from the political power in the.
State happy to do that. And it's a long history. It starts with Governor George W. Bush and he pushed for inclusion of some sort of wind credit or requirement, and the original restructuring bill you know that opened this up, you know, twenty five thirty years ago, and that initially led to some investment and when but pretty soon federal tax credits came in and made the much bigger difference than the state program, and that led to an enormous boom uh in which led to costs of the construction
and the components coming down pretty dramatically, solar battery when price costs all came down, and and now the most economically rational investment to make in many cases is solar plus storage.
Is that is that largely you know, early Biden infrastructure bills that really kicked started it, or or.
It went back even further than that. There's been a long history, uh until recently of having federal tax credits for production or investment in.
And clean energy.
Do you agree with sort of my assessment that I made up front, that that a lot of that growth has really helped put Argrid in a better position than it was four or five years ago.
For sure, solar keeps costs down.
As you know, the fuel cost of the sun is pretty low, and the cost of the equipment is also coming down dramatically. It's fairly predictable, so you can plan around it.
The sun. We know what time the sun will set, you know, seven.
Years from now, and there is you know, variability, but that can be accounted for pretty easily.
What it does do.
Is it pushes some of the issues around balancing the grid until after the sunsets when that resource is not available, and so as demand for electricity goes up after sunset, that's still something that Arcot has to manage, and so farther doing that with natural gas and batteries.
Right, So let's let's talk about this because, like we said, there's been you know, even as this growth has happened, there's been a considerable amount of skepticism in our state government around whether this is a good thing, you know, whether it's sort of pricing out more fossil fuel backed power that you know, some would argue is more reliable.
It feels to me like the two sort of criticisms of this, and I'd be interested in hearing your perspective on both, the first one being sort of what you talked about. It's actually less reliable. Right, you have a winter storm, the wind stops blowing, you know, not as much sun during the day and all of a sudden, we're in trouble. You can't turn the sun on at three am if you're having this crisis. It seems as though maybe batteries have helped with that a little bit.
But talk about that concern and is that still a concern in twenty twenty five.
For sure, it's still something that has to be actively managed. But we have a choice of do we manage it through like or you know control, command and control of exactly what's happening, or.
Do we manage it through market forces.
And that's a key question that drives outcomes. Since when a storm ury, we've been managing it with you know, urcot command and control. But in principle, if solar is not available when you need it, then it doesn't get paid to the very high prices that happen when you have a shortage of power, and so on average it gets paid less than a dispatchable power plant that is available during those high priced hours. So this, in my opinion,
there's not a need to fix anything. If solar wants to earn money during those high priced hours, then they add storage. There's a natural market incentive to do.
That, and this idea basically is building big batteries, connecting them to the grid, charging those batteries during this sunny, you know, hot or whatever windy times, and then waiting until you're in a situation where there's not as much supply in the system, where the prices will go up, and then you can make more money by right searching it.
And that can be you know, tens of dollars per making what hour on a you know, a normal day or on a tight day, can be hundreds or thousands of dollars per make what hour, which can make you know, an investors whole year.
It just very briefly, let's take a step back and explain sort of the ERCOT system here. It's you know, the the deregulated system, the system where you know, basically, right power suppliers are paid to feed the grid and they are paid based on how much demand and supply there is at the time. So when say you're in a winter storm and you know half the natural gas plants are out of line, you're making tons of money,
right if you're able to supply that grid. Whereas if it's a three o'clock on a windy day, in a sunny day and there's all this you know, renewable energy being fed in the amount that you're getting paid for suplying that grid is significantly right.
And I would argue that adds up to benefits to consumers because there's this intense competition that drives costs down. And the other side of that coin, when you said, if you're available during the high priced hours and winners from ury or some similar hour, you make a bunch of money. If you had sold your power in advance, which many power plants do, you were losing a bunch of money because you sold and now you have to fill in a gap that you don't have and you
have to buy it back for thousands of dollars. So that risk of having to buy back that power also creates a strong incentive to try to make sure your power plants are reliable.
It's basically the idea here is the invisible hand of the market is.
Yeah, and we see it happening. I know there's you know a lot of people that here you know markets and kind of get skeptical, but like, we have real world evidence of it working in the power markets.
Okay, So the other argument here has been essentially this isn't a free market system because there has been so much government government support for solar and wind and everything like that, and that basically the government, the federal government in particular, should sort of get its foot off the scale, which would make it more cost effective for natural gas plants, which they argue are more reliable because you can turn them on in the middle of the night to create
a better system for Texas. What do you think about that sort of argument.
So there's something to it. When you subptionalize something, you get more of that thing, But it doesn't change the fact that, you know, when things actually get tight and prices get high, it doesn't matter matter if you are subsidized to exist. It matters if at that moment you're available. If you're available at that moment, you can get paid those high prices, and if you're broken down, you don't get paid those high prices.
So there.
How you earn money in in that what's called the real time market, which when those prices can get high, directly contributes to whether or not you're willing to invest in UH solar or storage or natural gas. And frankly, it's been difficult lately for those prices to materialize for a natural gas in part because there are more expensive
resource than solar and storage. We are seeing some new natural gas now with all the enormous load growth we've had, and so it's you know, policymakers that are looking for that, you know, should you know, be happy to see it happening.
Finally, I mean when you talk about these like the foot on the gas idea of the federal subsidies. I spent some time this summer on an unrelated story out in parts of West Texas that are being just like entirely sort of remade in some ways with these giant wind farms and the batteries and and all of that.
And it is like there is obviously like a political underpinning to this that people feel like there is a part like generally, I feel like they feel like, oh, the Democrats are more likely to subsidize, you know, these sort of things. They want more subsidies for these renewable energy, and in Texas that is often seen as a bad thing. But I do feel like a lot for a lot of you know, people in the industry, they're sort of like, well, what's gonna what's going to get me paid a little bit?
You know, Like yeah, and it's not just in the industry about what's going to get me paid. But you know these investments are you know, creating an enormous tax space and rural counties that didn't have it previously.
Right, it's like if it you know, it's ultimately good for the consumer, you know, like benefits the consumer, benefits some of these landowners, and if it's people working in these industries, how much of that resistance is Do you think it's like it's sticky and or just sort of goes away if the money starts making sense, so.
You know that, you know, maybe it's a good way to transition to what happened last session where there were bills that were filed that would change the way some prior law that was going to increase costs for clean energy would have worked. It was called firming, and firming basically came out of HB fifteen hundred two sessions ago, and it's.
Really vaguely written.
It's not totally clear what it means, but it essentially means that they expect generators to perform above average during times of low reserves. But the way it was written, it was only for new generation for existing generation, and so it would be a new requirement for new investors, and generally that's a good way to do thing. Investors don't trust you if you impose new costs on their existing assets. They start to question whether or not you're
a reliable place to invest. Anyway, there was a proposal the past session to make it retroactive, and that got through you know, the relevant House committee. And the fact that it you know, advanced, you know, surprise a lot of people because there had just been a compromise two years before. So it led to pretty much the whole Texas economy coming out and saying, please don't pass this bill. It would raise costs, it would not help reliability, we.
Don't need it.
And it was an enormous effort where you know, almost every industry came out, you know, to express concerns about the proposal. It ended up not advancing after you know a lot of back and forth, but it forced people to kind of go on the record because it almost passed, so you know, that was interesting, and it also didn't pass, and that's an important story.
So yeah, and it's it's an interesting situation, right because I think one of the things maybe we felt like we learned about that whole process is that it might make good politics to sort of bash the idea of the Green New Deal or targeting fossil fuels in Texas or you know, the hardcore environmental right, I mean sorry left.
But then when you get down to evaluating what is the actual impact of these renewables where you know, once you build them, once you build the solar panels, once you are put in the wind farms, they're quite cheap
to you know, at generating electricity. And also there is a major there are major concerns as data centers come online, as bitcoin mining comes into the state, and also just the state grows in general, that there's going to be massive, massive needs for power over the coming years, and that
wind and solar might be the solution to this. And so, you know, I think you had a lot of folks thinking, you know, I might get a short term benefit for saying we stuck it to those like liberal environmentalists, but I also might face the long term frustration of my constituents who are paying more for electricity, or worrying about another twenty twenty one winter storm from happening.
Or like had a chance to sell their land to wind farm, or it's like seeing a you know the text, you know, benefits from a big battery plant or something.
Yeah.
Yeah, when it came down to it, there's an opportunity to pass you know, this bill that would have been damaging, and the legislature, in a bipartisan fashion, chose not to. But then yeah, so then then Congress happened, and so there have been you know, one of the things that President Trump said he would do is, you know, reverse all of the Biden policies around you know, the Inflation Reduction Act and has said, you know, the Green New Deal is you know, not good for anybody, and you
know other things along those lines. And you know, one of the things I've learned recently is you know, when the president says you're going to do something, you should believe him.
And so the bill passed.
You know, Democrats were hopeful that the way that Biden structured it, by having a lot of the benefits to crew in red congressional districts, would you know, inoculate it against being overturned. That didn't happen, And there's now the remaining tax credits. There's a scramble towards construction because in order to get them, you have to have to demonstrate the under construction in almost every case. The exception is I think if you're under one point five megawatts, you
don't have to do that. That's small, and so the other thing people doing is maybe doing more small projects because that's easier. But in my opinion, what's happening is there's actually a rush to qualify for the remaining credits.
When did those expire? Gosh, that's a good question.
Okay, soon soon, soon Again the fast approaching deadline.
Yeah, the very fast approaching deadline, and the once they expire, then we're going to be in a new world. Historically, they've been set for expiration and then extended and extended and extended, and I'm really curious to see what happens.
I still think we'll still see investment in solar and storage, especially in places with load growth, because it's just a fact that you can't consume a megawatt unless someone makes a mega wat, and so that means that in order to keep up the demand, we have to build new facilities and solar and storage. Because the impacts that we've had of those costs coming down for many years are
still in the money. It's going to raise the cost of buying those because they won't be subsidized, But especially in areas with load growth, I think we'll still see purchases, maybe not to the same level, but at least enough to keep up a load growth.
This is maybe too complicated of a question to answer in a quick but I'm curious whether you have any insight on you know, once these credits expire, does it flip the equation of whether it's more efficient economically efficient to build a solar farm or a wind farm compared to a natural gas plant.
So it's not a black and white question like that. We're seeing right now investment in both solar and storage and natural gas as it relates to all of load growth.
And that's because.
In the wholesale market, the people that are responsible for covering that load growth need to cover the possiabilities. So solar and storage can take you a long way and it's cheap, but you need to be able to physically have enough energy to get you through whatever conditions you know might arise. And so we're seeing investment in everything.
Right now that makes sense.
So one of the questions then, I have is what does this mean for the reliability of our ur cut grid moving forward.
Right, So.
Air Cut is kind of actively managing the problem of how do we deal with data center growth that get technical pretty quickly.
So I'm going to set that aside.
But they're doing a bunch of studies that will be done, you know, later this year, and then they'll react to whatever those studies say.
But beyond that, there's.
A question of whether or not Urkott lets the market participants, you know, follow incentives and see what comes out of that and just trust, you know that markets will lead to the right mix, or for them to be heavy handed and lean in. And ever since wenters from URI, they have kind of had their hands on the reins.
And recently at an Urkott board meeting, the chairman of the Public Utility Commission, Thomas Gleeson, said that it's time to reconsider whether or not we kind of control the market as tightly as we have, and that's called they've been calling it conservative operations, and he said, maybe it's time to reevaluate that. I'm excited by that because I think it will lead to more investment and you know, all kinds of capacity.
Because one of the things that conservative operations has one of the causes of that, or one of the effects of it is it makes prices go up for the average consumer.
Well they not necessarily.
They buy more reserves and so costs go up, but prices don't necessarily go up.
It's just a quantity issue, right.
But what investors want to see is higher prices occasionally, so that way they can earn those higher prices by being available during those conditions. So by buying fewer reserves, you're buying the total quantity and the bill goes down. Plus this is the opportunity for these higher prices to materialize that investors can earn. So it could, if they do it right, result in lower costs and more investment.
Are we moving off of conservative operations because like we have strengthened the systems and we've learned our lessons and things are better, or just because when the winter storm is so far in the rear view mirror that you know.
Yeah, it's a little bit of both.
But the state has made significant progress on responding to Winterstorm Muri. There was some real low hanging fruit on what to fix weatherization of generators in the natural gas system. There is a procedure to shut down consumers to match apply and demand, there's not enough generation. That's called rotating outages, and unfortunately, some of the outages that they rotated were onto natural gas systems, and so it led to unintentionally
cutting off natural gas going into the power plants. We're never going to do that again because we're like, oh, that was a mistake, let's fix it. And so that was that's a real easy thing to fix. Plus there's been a number of new market design changes. I think we're in a better place.
Interesting. Interesting.
One other thing that did happen during the legislative session was the state putting I believe five billion more dollars into the Texas Energy Fund RIGHT, which is a fund that is specifically designed to give low interest loans to natural gas plants, right, not renewable plants and things like that. I think the total now is ten billion dollars of the legislature has put in there in recent years. And one of the criticisms of that was that just not
many companies are accessing that. At the time, there had only been two I believe now there's been a third. Right that happened this week or sorry, last week. There was also an announcement separately from that and it was the biggest loan ever, right, it was five hundred and sixty two million dollars approved by for Energy to be
a plant. You also had Vistra Energy announcing I think maybe yesterday that it was going to be build to new advanced natural gas power units totally and I think eight hundred and sixty megawatts, which is a major, major investment. How much of that is the market responding and swinging back to natural gas and how much of it is just development that would have happened anyways.
So one of the things that you know, in my opinion, is interesting about the Texas Energy Fund is I've been talking about incentives and it's you know, it's a lot to take in, and the politicians realized that and needed to be able to explain to you know, every day voters that were doing something. And I think that's why they created the find to say, here's this money, it's going to new investment that's easy to understand, and it makes sense because you know, they want to be able
to clearly explain the voters that they accomplish something. The investment in natural gas and whether it's happening in the Texas Energy Fund is interesting. There have been a number of canceled projects and the Texas don't do fund you know, where the applicant said that you know, they didn't have a turbine available or it, you know, didn't you know,
make sense for one reason or another. But we what the power plant investment in natural as we are seeing not all of it, especially with this Vistra stuff, but a lot of it is going co located at new data centers. And you know that's because what those data centers need is the physical ability to consume electricity. And it doesn't matter about market design or incentives or whatever. They just need enough megawatts in one location to you know,
do their business model. And so for that reason, it's worth it to you know, install solar storage, natural gas uh installed, you know, pay for you know, giant new transmission lines because they have an infrastructure problem, not a market's problem, and if they can consume a lot of electricity, they're happy and they're willing to pay for the cost of that.
I mean, there was a like we've talked about sort of the criticism on the right of you know, putting your thumb on the scale or subsidizing renewable energy. This obviously is like pouring money, a ton of money directly into natural gas. I mean, do you see sort of a conflict there in those two or is it just sort of this as hell?
Yeah, in many other markets, uh, you know, a market for apples or t shirts.
You know, it's not there's not a need for politicians to weigh in and say, I think we should do the T shirt market differently. But electricity is just so fundamental to our daily existence that and this Historically it was regulated very differently where it was, you know, very much like all the decisions were made by the government, and so it it makes sense why people you know, went away and make sure that people get the lights on,
especially after the experience that we had. I would love for the politics electricity to get boring again.
Yeah, make electricity boring.
Yeah, Yeah, it's funny.
Just I think about like how many people didn't know what urkot was in twenty eighteen or whatever. Now.
Yeah, you know, it's like we didn't.
Even have to explain it on this podcast because we've all been talking about it for so long, right, Yeah, one thing I wanted to ask, I mean, the other thing driving this we've hinted out a little bit. Is just this idea that all this massive amount of demand coming on to the grid in the coming years in order to power the you know, economy of the future,
the expected economy of the future. It's very complicated though, right because we have this massive queue of data center and bitcoin miners who want to join the grid, but they're also you know, applying to join grids in other states or other places around the states, and it's very unclear how that's being built. Is that making it difficult for regulators to know what to what they need to be doing, and what they need to be accomplishing in order to shore up the power.
In the state. Yes and no.
The yes is to know exactly what to do. But the no is like they know, we need more investment and transmission and we're going to need more generation.
Right. The way it gets complicated is.
There are only a certain number of companies that are going to pay for these hyperscalar data centers, you know, companies like Google and Meta and open Ai. And it's not you know, going to be you know, a bank that's running you know, their system, they don't need something of that scale. They can use traditional data centers for their business model, and a lot of people would love to sell an enormous data center site to these giant companies,
and so there's a significant amount of speculation. One of the things that SB six did last session is require that data center developers demonstrate that they control the site and also require them to post what will probably be a substantial amount of money before the utility or acut does any planning for them, and that prepayment will hopefully filter out you know, some number of speculators, so it'll be an easier problem to solve.
I want to ask long term, I mean the numbers I read at the start of this. You know, two of the power supply capacity that's been added to the grid has come from wind, solar, or battery since twenty twenty one. And the trend line seems clear here of what direction we're heading. Do you think that the actions of Congress this summer will in the long term substantially change the direction of that trend line? Like, is there any is there putting? Can the toothpaste be put back
in the tube here? Or are we ultimately heading toward a solar, wind and renewable future for a grid?
In my opinion, the solar and storage is going to be a key part of our future. No matter what we will see changes, there's constant you know, invention that's happening and the battery space and the solar panel space to make them more efficient or longer duration for the batteries. There's different kinds of batteries that are coming out all
the time. A lot of people are excited by clean firm power, so that's you know, not necessarily natural gas, but maybe natural gas with combon capture and storage, or nuclear power, geothermal power, or you know, longer duration storage. There's a lot of investors that are trying to make all those things happen. Historically, the government you know, had industrial policy around let's do what we can to reduce
those costs. And we might still be doing that for nuclear, but but for nuclear that's not really happening.
And so if.
People want those to happen, then there's going to have to be some sort of you know, risk sharing or you know, other mechanism in order to make sure that those first movers don't have huge cost overruns. And I think there's gonna be active evident that space because people want to see there's other technologies, see other technologies succeed as well.
So okay, let me this is a question that I've been wanting to ask someone smart enough to have an opinion on it for a while. So I'm going to veer into the realm of fantasy and uh, pure speculator, here we go. Yeah, here we go. So you know again, I'll repeat it again. One of the big drivers of this is AI, right, data centers, crypto to a certain extent as well. Right, there is this massive rush by companies to build as many data centers as possible in
order to power our AI future. Right, whatever you want to call it, right, But something we know about technology is that it gets more efficient over time. It You know that the computer that took up a whole you know, floor of a building, you know, seventy five years ago fits in our watch today.
Right.
Is there a world where we're rushing to fill all these this power demand? This technology will get more efficient in the future, and then the super cheap to maintain wind and solar and batteries will sort of be what's left standing as demand drops elsewhere and we're suddenly looking whether it's fifty years down the road or twenty five years down the road, or whatever on a much much cleaner, less fossil fuel dependent power supply, just because the demand
has changed so much. And these things we built in this decade were are the ones that are going to be the easiest to run into the future.
So I think AI is going to change every job and every industry. And because of that, there's substantial demand and for the capabilities to make that happen. So we are not anywhere close to the amount of data center development we need to make that happen. It won't happen all at once, but you know, that's that takes a
substance amount of electricity. It's possible that you know, the next generation of that will result in like more efficient chips, but what that could mean potentially it's just more chips at one site too, right, And you know it's also changing, you know, the way we think about national security. You know, we've seen you know, the horrible videos in you know,
Ukraine where you know, drone strikes against people. You know, unfortunately, you know, that's easier to do when you have when you automate it, and and from even just from a defense perspective, if the other guys have it, you wouldn't have it too. That's also AI. So as we make all these new investments, you know, even if AI drops off or or if it doesn't, I don't think it matters.
In my mind. There's a continual loop of.
New load from new industry coming because they see cheap electricity, which was made possible by solar and storage, because that's how it gets cheap.
That new.
Demand increases prices, which increases the incentive for new solar and storage.
And that's the virtuous cycle.
And I don't know what the next thing after AI is going to be, but the access to enormous amounts of cheap electricity will enable all kinds of potential.
Yeah, that makes sense, all right, My techno utopian theories might be a little optimistic there.
It is just funny, like these are the things that for all the politics we talk about and all the like culture war stuff like, this is the stuff that our elected officials really I think should be an often are grappling with of like what is the future of our.
World going to be?
But also just like the power of partisan politics and like fighting like might not have as much power over you know, technological changes in the future we're going as to as we think right, Sometimes the market is going to push you in a direction whether you like it or not. And sometimes a place like Texas, which you know claims to be suspicious of this, will find itself the market leader in the country.
Well, and you know that happened just because Texas got out of the way and let investors do what they wanted.
To do right, right, And you know, the it's been so funny to watch, you know, folks like the Abundance people talk about how you know, these these sort of liberal thinkers saying, California, you're doing it wrong. Look at Texas. Right, It's so much easier to get the permitting. It's so easier to much easier to get these projects off the ground because they stay out of people's way and let these things build up. You know, it's an interesting world we live in right now.
Yeah, it does remind me of the conversation we had on this podcast about housing and things like that right where it's like you know, things credit where credits do some stuff is working here?
Yeah, all right, Eric, thank you for walking us through this. It's been a very interesting discussion. Thank you, Eleanor, and thank you to our producers Rob and Chris, that's it for it today.
Talk to y'all next week.