Texas Electricity: Changes in How the State Produces its Power
by Jason Thomas, Vault Energy Solutions

DALLAS - August 2015 - A decade ago, coal stood alone and unchallenged as the number one source of power generation in the U.S. While coal is still the largest single source of electricity across the country, it has seen its lead erode year after year as renewables and cheaper natural gas gain market share.

According to the Energy Information Administration (EIA), power generated from natural gas exceeded that from coal for the month of April this year. It’s the first time since the EIA began compiling data in 1973 that natural gas has surpassed coal. While natural gas eclipsed coal only for the one month, it is confirmation of the trend that has been in place for the better part of a decade now.

New Drilling Techniques Lead to Cheaper Natural Gas

A substantial drop in spot prices for natural gas began in 2008 as new shale drilling techniques took hold in the natural gas industry. While natural gas prices have rebounded from their 2012 lows, they are still substantially lower than they were prior to the onset of the shale drilling revolution. Shale gas wells which made up a tiny fraction of natural gas wells in 2007 had become the largest source of natural gas extraction by 2013. Thanks to new techniques in drilling, natural gas trapped in shale rock formations is now easier to reach with lower drilling costs. This has resulted in the greater use of natural gas as a source of electricity generation.

In Texas alone, natural gas production from shale formations more than tripled from 2007 to 2013, thanks in large part to the Barnett, Eagle Ford and Haynesville-Bossier plays. Texas is by far the largest producer of natural gas among the states. Not surprisingly, natural gas is already the primary source of electricity in Texas, having long since eclipsed coal.

Texas Invests in Renewable Energy Infrastructure

Aside from being the largest producer of natural gas in the country, Texas is also one of the largest wind producing regions in the entire world. Texas now gets approximately 10% of its electricity from wind power; an amount that could likely increase due to the state’s recent investment in infrastructure to support wind power. Several years ago, the state literally had more wind power than it could use. West Texas wind turbines at times produced more electricity than could efficiently be put to use by the state’s grid at any given time.

This resulted in ‘curtailments’ in which wind power was removed from the grid to prevent imbalances of supply and demand that could destabilize the grid. With the state’s recent completion of a multi-billion dollar electricity infrastructure project called Competitive Renewable Energy Zones (CREZ), the state now has the power lines required to move West Texas wind more easily to the population centers in the eastern part of the state. As a result, curtailments have gone from 17% of the state’s wind capacity in 2007 to basically zero in 2014. This sets the stage for future private investment in wind energy in Texas.

The Electric Reliability Council of Texas (ERCOT) predicts that wind capacity in Texas will increase 74% just from 2014 to 2017.

The improving economics of Renewable Energy

Renewable energy is gaining momentum not just as an environmental play, but increasingly as an economically feasible alternative to fossil fuels. The city of Georgetown Texas recently gained attention for becoming the first city-owned utility in the state to commit to a 100% renewable energy portfolio through a combination of wind and solar power. In discussing the benefits of switching to an all green energy mix, the city cited the financial incentive as the primary factor in the decision.

Georgetown is not an outlier. According to the U.S. Department of Energy’s 2014 Wind Technologies Market Report, rates for power purchase agreements for wind energy in 2014 were “below the bottom of the range of nationwide wholesale power prices.

The trend towards more renewables and less coal is expected to continue into the foreseeable future; with some predicting that the state could receive as much as 40% of its power from renewable sources by 2033. The combination of deregulation, infrastructure investment, and improving technology is changing the way Texas produces its electricity.

About the Author:
Jason Thomas is co-founder of Vault Energy Solutions, a leading Texas based energy broker.

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