More Government Intervention Will Not Solve the Problems Facing the Texas Grid

Testimony on Texas' Senate Bill 6

Since 2011, market participants, regulators, and watchers have understood that intermittent energy sources—wind and solar—are causing three major problems in the ERCOT electric market.

First, their intermittency has increasingly pushed the grid towards unreliability. Second, they have driven reliable thermal generation out of the market because renewable subsidies have made investment in dispatchable generation unattractive. Third, they have contributed to ever increasing prices as the market, politicians, and regulators have struggled to improve reliability.

The answers to the problem of wind and solar generation have been obvious for more than a decade: 1) eliminate all Texas subsidies for intermittent generation, and 2) make wind and solar generators pay for the reliability costs they impose on the market due to federal subsidies. Unfortunately, the Texas Legislature has done neither.

Instead, the Legislature and the PUC have doubled down on market intervention, emasculating Texas’ energy-only market. This has taken two forms. The first is imposing significant regulatory restrictions on the market. A sample of these efforts is shown in Figure 1.

The second intervention has been artificially raising electricity prices in an attempt to make investment in dispatchable generation profitable. The result of this is shown in Figure 2.

As Table 2 shows, the consumer-financed $53 billion energy tax to pay for thermal-focused subsidies over the last five years has done nothing to eliminate the growth of renewables on the Texas grid, improve the reliability problems they are causing, or increase investment in thermal generation. And neither will the Texas Energy Fund, the Texas Nuclear Energy Fund, or Senate Bill 6. We simply cannot out-subsidize the federal government.

The only solution—at least the only affordable, permanent solution—is to decrease government intervention in the market and eliminate subsidies for all generation sources—wind, solar, and thermal.

The Texas Legislature should let producers and consumers—rather than regulators and politicians—decide the best mix of price, supply, and reliability on the electric grid. In other words, you should let the market work.

I’ll deliver this testimony on Senate Bill 6 to the Texas Senate’s Business and Commerce Committee this morning.