As buyers of power continue to adjust their strategies to avoid risk and maximize opportunity in the market, Energy Edge recaps the trending topics of 2019 and a look ahead to leading indicators for 2020 and beyond.
- As renewable energy growth continues, new fossil fuel generation is less likely to be developed
- Natural gas production is at an all-time high and Texas’ economic growth continues
- The results of the 2020 election may have a dramatic effect on the energy sector
Texas’ Changing Generation Mix
Following the national trend, the amount of electricity generated with coal in Texas is quickly dropping. Natural gas-fueled generation remains the primary generation method in ERCOT and Texas remains the front-runner of wind generation development in the US. 2019 led the way with an increase in solar development in the state. Many plants are in various stages of planning and construction, with ERCOT predicting the amount of solar generation will quadruple in the next two years. Solar technologies are improving while costs are decreasing.
Combine the cost reduction of solar projects with the on-peak volatility during summer (when solar would perform the best), the economics are becoming more favorable and developers are installing and marketing projects for consumers.
This is giving buyers more options in how they strategically procure power. This is especially true for intensive energy consumers that purchase power in blocks combined with some level of exposure to spot market prices. Buyers are now able to procure solar power offtake to reduce exposure to the highest-priced power experienced during on-peak hours. This lowers the risk to volatile periods with spot market exposure, increases budget certainty, and can be applied to corporate sustainability and carbon reduction goals.
Additional facts about renewable development in Texas:
- Texas is expected to double its solar output in 2020 and again in 2021.
- There is some 60,000 MW of utility-scale solar capacity development currently “under review” in ERCOT. ERCOT’s total generation capacity, of all types, is near 80,000 MW.
- The solar and wind tax incentives (ITC and PTC respectively) begin to step down after 2019. This could influence some projects that did not reach the construction phase. It is not expected to halt development altogether.
Expectations for 2020
Solar assets will continue to grow in Texas and corporate buyers will continue to invest in these projects to meet economical and sustainability objectives. Especially as the reserve margin continues to be below established targets. The grid operator for Texas recently reported that it expects summer for 2020 to perform similar to the summer of 2019. This means continued record demand for power and the potential for emergency grid conditions.
The Takeaway for Power Buyers
- There’s an opportunity to procure renewable power as part of strategic energy purchasing. The previous hurdles of price per kW and term length are beginning to minimalize.
- Fixed prices for solar power can offset high costs associated with on-peak power prices, especially during summer months. Purchasing from a solar asset can also help meet corporate sustainability goals and show customers and stakeholders the organizations’ commitment to a cleaner energy future.
- The feasibility of some options and projects can be explored at minimal to no cost.
How Energy Edge Can Help
- Energy Edge can help educate buyers and stakeholders on the terminology, concepts, and options available for a renewable purchase in ERCOT.
- We have helped several companies explore the feasibility of renewable power purchases with our renewable cost models
- Energy Edge also assists buyers with building a case for long-term energy purchases in organizations that have not traditionally supported purchases beyond three to five years.
Buyer’s Action Items to Begin Evaluating a Renewable Purchase:
- Capture and consolidate data on current contract expirations for each location and market
- Re-evaluate energy program and strategy, short-term and long-term
- Identify the pros and cons of long-term buying options including business policies, facility longevity, acquisitions, etc.
- Become educated on renewable options and opportunities and perform high-level feasibility
- Setup committee of internal stakeholders to included members within the energy, facilities, operations, finance, and sustainability departments
- Outline program goals for the next 3-5 years including stretch goals for the organization in next 10, 20, 30 years
- Establish regular stakeholder meetings to evaluate market opportunities and current cost and usage patterns
- Identify additional needs in areas of efficiency, resiliency, and sustainability
ERCOT News Release, “Record electricity use expected this summer, ERCOT prepares for potential tight conditions,” March 5, 2020
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