The Texas Energy Fund.
It was supposed to kickstart the Lone Star State’s development of new gas-fired power plants.
But it’s not going so well. Not that we should be surprised.
As reported in Bloomberg, the new Texas experiment to fund new natural gas power plants with $5 billion in public loans is faltering as several of the proposed facilities have dropped out, threatening the state’s efforts to meet growing electricity demand.
Together, the projects that have left the program could have generated 4.6 GW. Enough for about a million Texas homes. Developers say that even with low-interest loans from the state, their projects no longer pencil out. This, due to cost uncertainties and problems procuring equipment. Some have also faulted the program’s strict deadlines and terms.
The fund was touted by lawmakers as a way to jumpstart gas-plant development. This, at a time when cheap solar and wind power have cut into the state’s wholesale electricity prices.
“When you have zero or negative prices for power, it’s really hard to build,” said Jim Burke, chief executive officer of Vistra Corp., at a conference held by the Electric Power Supply Association on Wednesday in Washington, DC. Two Vistra projects are under consideration for Texas loans.
To be sure, Texas boasts some of the strongest and most abundant renewable energy resources in the country. In fact, it’s number one in wind power. And its solar industry is one of the fastest growing in the nation.
One could also argue that this rapid proliferation of renewable energy is the result of a sort of “hands off” approach that the state of Texas has long had when it comes to building out its energy economy. Something every free market advocate can support.
But in 2023, something strange happened …
There was a pushback against the continued integration of renewable energy by policy makers who lost their way when it comes to favoring free markets over government intervention.
As reported in the Washington Post, some of the state’s most anti-regulatory lawmakers were pushing new and onerous rules and permitting requirements for solar and wind, while backing measures that would require taxpayers to foot the bill to bolster and expand the state’s natural gas market.
Some have justified these moves by arguing that renewable energy is inherently unreliable. And that the state needs more fossil fuels to avoid another electricity blackout crisis. Even though most of the loss of generating capacity during the 2021 outage came from gas power plants.
While it would be foolish to deny the benefits of having easily dispatchable resources, such as natural gas, the need to limit renewable energy growth in an effort to strengthen the natural gas industry is absurd. It’s also absurd to assume that natural gas is the best option for easily dispatchable electricity, anyway.
Thanks to the rapid development of battery storage technology over the past few years, we’re now seeing evidence that utility-scale battery storage can be about 30% cheaper than new natural gas plants.
Worth noting: battery backup storage is less likely to be affected by extreme weather conditions. Unlike the natural gas power plants that failed during the 2021 winter storm that wreaked havoc on the Texas grid.
Texas Energy Fund Falls Flat
Of course, I get it. With Texas being the largest producer of natural gas in the country, and with so many lawmakers in Texas still hostile towards renewable energy, you don’t have to be a genius to know why this fund even exists.
In the absence of natural gas power plant subsidies, there would be little interest in building new gas-fired power plants. And even with those subsidies, as we’re seeing now, it still may not be enough. In fact, just recently, the state’s plan to integrate more natural gas into its energy economy hit another roadblock. This, after Constellation Energy (NASDAQ: CEG) withdrew nearly 2 gigawatts of projects that were under consideration.
Citigroup also recently put out a research note indicating that the fund was “falling apart,” with analysts writing …
We expect several more gas power developers to remove themselves from the Texas Energy Fund.
How this will all play out is still uncertain. But those who make the big decisions in Texas really need to have a “come to Jesus” moment. They need to stop trying to pick winners and losers. If this were to happen, it is likely that the Lone Star State would not see any future natural gas power plants. But instead, continued growth in solar and wind, more utility-scale backup battery project, and even some new nuclear power projects using small modular reactor (SMR) technologies.
The latter is still cost-prohibitive, but indeed, SMRs will soon be a part of our energy economy. Getting an early lead here could offer the state an opportunity to benefit from the next generation of nuclear power that could really be a major game-changer for the entire country. Not just Texas.
