Monday, February 18, 2019

Overheard at Infocast’s Texas Renewable Energy Summit

AUSTIN, Texas — Renewable energy developers, energy providers, end users, renewable manufacturers and others gathered last week for the Infocast Texas Renewable Energy Summit, where attendees heard discussions on the challenges ERCOT faces in building transmission, adding renewable resources and ensuring grid reliability. Here’s some of the highlights.

No CREZ in Sight for Permian Basin’s Energy Production

A rebound in oil and gas production in West Texas’ Permian Basin has prompted a call for more transmission, but Texas is unlikely to repeat the $7 billion Competitive Renewable Energy Zone (CREZ) transmission investment, speakers said.

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ERCOT’s Jeff Billo (l), Hunt Power’s Brad Schwarz listen to their panel’s moderator. | © RTO Insider

Midstream load has “come alive again” in the Permian, said Brad Schwarz, Hunt Power’s director of system planning. He said that has led to producers wanting to access the grid with “a significant amount of load” — 15 to 20 MW — within about a year.

“In an area that is typically not meant to serve that amount of load, just getting through ERCOT’s approval process will take that 12 to 18 months,” Schwarz said.

“Let’s say it does take 18 months [to plan a transmission line]. Those … companies can’t wait, so they’ll self-generate just to” be able to process and ship their output, said GridLiance’s Brian Gedrich, vice president for the independent transmission company’s South Central Region. “Once they’re self-sufficient, what’s the justification for building transmission? Building transmission may be the best answer, but is it the best answer for consumers when they’re already generating?”

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Craytlus’ Mark Bruce | © RTO Insider

Cratylus Advisors’ Mark Bruce, who is working with Pattern Development on its Southern Cross Transmission Project, noted the inconsistency between the legislative push behind the CREZ initiative and a similar effort to address the Permian Basin. The years-long CREZ effort resulted in the construction of 3,600 miles of transmission with capacity to deliver 18.5 GW of wind power across the state.

“The thing about CREZ that made it so special is the government said, ‘We will build it, and you will come.’ It provided a mechanism for parties that all had risk but couldn’t solve for that risk,” Bruce said.

“I find it interesting in Texas, where policymakers are allowed to make market judgements, the [Public Utility Commission] is tying its own hands to say we’re done with this CREZ stuff. There are mechanisms in place to address those timeline issues. If there were to be a planning process to serve this future generation in an economically viable way, to maximize [solar] generation and also benefit the oil and gas industry in the process, why wouldn’t you build it all?”

Bruce and Jeff Billo, ERCOT’s senior manager of transmission planning, agreed that with or without another CREZ-like development, ERCOT will continue to see growth in its solar power. The ISO currently has almost 1 GW of solar capacity, and the interconnection queue has more than 200 MW of planned capacity with signed agreements.

“The economics [for] solar transmission additions are much better than for wind,” Billo said. “There are a couple of reasons for that. Every day the sun is shining, it’ll be at its nameplate capacity. The dollars for congestion … add up quickly [for solar]. If you have a solar plant that’s constrained, it’s constrained every single day during peak demand. From a planning perspective, it’s easier to justify transmission for solar than wind.”

“Solar is going to start finding its way, as the economics are there,” Bruce said. “The real challenge is the market fundamentals aren’t moving, unless the gas price moves. If the fundamentals of the [generation] stack doesn’t shift, you’re going to see policymakers putting their thumbs on the market over the next six to eight months.”

Bruce said he was referring to efforts by NRG Energy and Calpine to persuade Texas regulators to “ratchet up” the effect of the operating reserve demand curve to push prices higher. Regulators could also adjust marginal loss calculations to harm remote wind and solar generation and help generation in load pockets, such as gas plants in the Houston area, he said.

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Genscape’s Hudson Gilmer | © RTO Insider

Genscape’s Hudson Gilmer said RTOs are making a mistake by continuing to address new intermittent generation with traditional transmission solutions.

“It’s not an accident we continue to build transmission the way we have for the last 75 years. The planning process and the stakeholder process are designed to build more transmission,” he said. “The transmission planning hasn’t evolved [along with generation]. We’ve got to get smarter in planning for system growth. Other solutions, like dynamic line rates or convertors, are so much more effective than building CREZ like we did years ago.”

Billo said things are better than 2011 and 2012, when the fracking boom “sort of took everyone by surprise.”

“There are fundamental differences now in the time frame it takes to build transmission,” Billo said. “I give a lot of credit to the [transmission and distribution providers] out there. What we see today that we didn’t see five years ago is they have a lot better relationship with their customers that fosters communications that helps the planners and utilities … we’re a lot better off than we were.”

Texas Outgrows its ‘Adorable’ Wind Energy Goals

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PUC Commissioner Brandy Marquez | © RTO Insider

Texas PUC Commissioner Brandy Marty Marquez recalled when wind generation was limited to barren West Texas and the state legislature set a wind capacity goal of 2 GW.

“Looking back at the original goal … you might call it adorable,” Marquez said in her keynote address.

However, thanks to the CREZ and Texas’ insatiable demand for energy, ERCOT has almost 20 GW of wind energy at its disposal, some of which can now be found along the Gulf Coast.

“We’ve exceeded the capacity found in any other state, and almost every other country,” Marquez said. “It was a labor of love for our state.”

Marquez noted the transmission buildout has led to other benefits as well, pointing to more than 24,000 jobs the Department of Energy says the wind industry has created and $85 million in annual revenue to ranchers and farmers for turbine leases.

She said the PUC, like ERCOT, will remain fuel-neutral, however. “The market will drive the agenda and be the ultimate arbiter of fuel use,” Marquez said.

Garza: No ‘Price Collapse’ in ERCOT’s Market

Although ERCOT averaged real-time prices of only $24.62/MWh in 2016 — an 8% drop from the year before and the lowest since the nodal market’s implementation in 2010 — it’s incorrect to call it a “price collapse,” said Potomac Economics’ Beth Garza, who leads the ISO’s Independent Market Monitor. (See “IMM Offers Additional Suggestions to Improve Markets,” ERCOT Briefs.)

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Dynegy’s Bob Helton, Potomac Economics’ Beth Garza and Filsinger Energy Partners’ Tim Wang (l-r) discuss ERCOT’s low power prices. | © RTO Insider

“I don’t believe [price collapse] is a fair and accurate assessment,” Garza said. “Prices are lower, but price collapse says they were unsupported at high levels somehow. It’s more a reflection of the conditions we have, [with] very low natural gas prices and the changing composition of the energy being produced.”

Garza noted wind energy accounted for 15% of ERCOT’s generation mix last year, a number that has jumped to 21% in the first half of 2017. The extra capacity and low prices masked the fact that ERCOT set a record for peak demand last summer. That was unlike 2011, when record heat led to large price spikes.

“Since 2011, we’ve seen over 17 GW [of new energy] come into the market, and with very few [fossil fuel] retirements,” said Filsinger Energy Partners’ Tim Wang said. “Last year, we had record heat and record peak demand, but prices stayed flat. That’s the state of the market right now. There’s plenty of capacity.”

That has caused problems for owners of uneconomic units, such as Dynegy. Though Tudor, Pickering, Holt & Co. analyst Neel Mitra has told investors he regards the company as one of the country’s top independent power producers, Dynegy has had problems selling its assets.

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Norton Rose Fulbright’s Keith Martin updates Infocast attendees on the latest legislative developments in Washington. | © RTO Insider

“Everything in ERCOT is up for sale right now,” Dynegy’s Bob Helton said.

“What’s your price, Bob?” Garza asked Helton.

“Apparently, it’s pretty high,” he responded with a laugh.

Helton said those economics are pushing owners of some aging plants to save money by reducing maintenance expenses. “You’re going to run it until it fails,” he said. “Do you announce a retirement before that happens, or do you have a major tube leak or something that requires a high-dollar investment?”

“A large amount of that [recent plant] construction took place at the turn of the century,” Garza said. “A lot of those units are about 15 years old. That’s half their expected life.”

“How do you get more money to the market?” Wang asked. “After 2011, there was a lot of conversation around resource adequacy and a capacity market. As the new capacity has come on, the market has responded with those low prices, and all that conversation has died down. To a certain extent, you have to be proactive. If it gets to the point where you have retirements, demand spikes and prices go up again, will the market respond to a one-year price cycle? Or will it return to its senses and say, ‘We did this before. We’re not going to do it again.’”

Conventional Generation Playing ‘Chicken,’ Trying to Hang on

With economic headwinds making it difficult to build conventional generation, Chad Blevins, a senior consultant for The Butler Firm, said owners of existing plants are holding on as long as they can. He pointed out that unless one works for the generation owners, it’s difficult to determine what their cash positions are.

“There’s a lot of games of chicken going on here between these utilities,” he said. “‘As long as we lose money while the other guys lose money, we’re good. If he goes under first, that will help lift up the market just enough so I’ll be good.’ They want to hang on as long as they can, so they have that physical option until the other guy pulls out of the market and they’re clearing at a better price.”

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NRG Energy’s Mark Walker | © RTO Insider

NRG’s Mark Walker, speaking on the same panel discussing investments in traditional generation, said there’s still a need in ERCOT for flexible resources that can supplement intermittent renewables. “Several projects are being delayed, but if we’re going to make some [market design] changes, now is a good time before we get to a crisis situation,” he said.

Walker also said that if ERCOT had a local reserve product, expensive efforts like the $590 million Houston Import Project might be avoidable.

“Right now, ERCOT only has one tool in its toolbox [to address local reliability], and that is building transmission,” he said. “Had we had a local reserve requirement in the Houston area, we might have had enough to avoid a project the size of that one.”

Technological Improvements Leading to more Efficient Renewables

A panel of wind energy developers discussing the forces driving their market agreed that the recent influx of wind has been driven by larger and more efficient turbines. Technological advances will continue their influence going forward, they said.

“Technology has definitely played a big role, and it’s going to play a larger role in opening up new areas,” said Phil Moore, vice president of development for Lincoln Clean Energy. “We’ve had a huge amount of transmission buildout in the last decade, but it’s going to be tougher going forward. Technology is going to have to bridge that gap in opening up less-than optimal areas.”

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Pattern Development’s Ward Marshall | © RTO Insider

“The projects I’m seeing starting construction are in areas I never would have dreamed as being economical in ERCOT,” said Ward Marshall, Pattern Development’s senior director of business development. “Texas has been an unbelievable dumping ground of [federal tax credits]. A lot of projects have been built from that standpoint, but now we’re flooded with immense amounts of low-cost, cheap power.”

Marshall took the opportunity to plug Pattern’s Southern Cross project, saying it “will have some effect on draining the swamp.”

Will DER Help with Slow Load Growth?

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ERCOT’s Paul Wattles | © RTO Insider

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Sierra Club’s Cyrus Reed | © RTO Insider

ERCOT’s Paul Wattles and the Sierra Club’s Cyrus Reed looked at demand growth in Texas through different lens colors during a discussion on behind-the-meter energy resources.

“Per capita load growth is flat, like it is everywhere,” said Wattles, the ISO’s senior analyst of market design. “Our growth is coming from the industrial sector and oil and gas growth in West Texas and the Gulf Coast. We’re going to continue to see load growth in ERCOT, but not necessarily [per capita growth] because — like the rest of world — we’re becoming more efficient.”

“We continue to get people moving in here, we continue to have housing starts of 100,000/year,” Reed said. “Sierra Club is pushing that building codes be solar friendly at the local level, so even if rate cases go the wrong way, there will be opportunity for growth.”

Of course, distributed energy resources present their own challenges. Wattles reminded attendees that ERCOT is continuing to map DER on the distribution system, so it can gain a better understanding of where they are.

“When you start seeing solar and storage together, you’re seeing a DER that can be dispatched,” he said. “We’re still a way away from that. The critical mass just isn’t there yet, but I think we have to be ready for it.”

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Sunrun’s Amy Heart | © RTO Insider

“We’re in the early stages in Texas … of allowing distributed resources to get on the grid and grow, so we can have them available and start using them,” Sunrun’s Amy Heart said. “We’ve certainly seen Texas is not out of the ordinary. Let’s not stop a market in its tracks just when it’s getting its feet under it.”

Look no further than Ontario’s Independent Electricity System Operator (IESO), which has about 35 MW of DER connected to its grid. The ISO’s manager of generation procurement operations, Rob Sinclair, said because much of those DER are the result of power purchase agreements, it gives the Canadian grid operator more insight than its brethren.

“The advantage we have, because we contracted with a vast majority of these facilities, we know where they are and how they’re operating,” Sinclair said. “That gives us a bunch of insight, but there are still things we’re not fully aware of. We’re trying to understand how to modernize our tools to integrate those resources. We’re moving from a PPA framework to a net metering framework, so we’re just about to learn how net metering will work in our market.”

— Tom Kleckner