The Curious Case of the Texas Wind Industry

curious case of the texas wind industryIn January, Cape Wind attained what appeared to be the final permits needed to break ground on the long-awaited wind farm. For the past 10 years, the Massachusetts-based Cape Wind project has faced political and legal pressure from advocacy groups and residents who have lobbied hard against the 130 turbine offshore wind farm. In that same amount of time, almost 10,000 MW of onshore wind capacity has been installed in, of all places, Texas.

By 2010 Texas had become the undisputed leader of wind energy in the United States, a fact that flies in the face of conventional logic. How is a state steeped in oil and gas, and run by climate-change denying politicians, spearheading some of the largest renewable energy developments in the US? The answer could provide some insights into how renewable energy can flourish in states where environmental and climate concerns aren’t necessarily the main drivers of energy policy.

Oil, Money, and Politics

The Texas economy is valued at $1.2 trillion, putting it on roughly the same GDP level as India, Russia, and Spain. The State’s economy also produces, and consumes, more electricity than any other state in the country. The vast majority of this electricity comes from fossil fuels, making Texas the largest CO2 emitting state in the United States, which until 2006 was the largest emitter of CO2 in the world.

Fossil fuels are intrinsic to the politics and economy of Texas. According to the EIA, in 2009 Texas was the leading crude oil-producing state in the U.S., and its 27 refineries account for more than ¼ of total U.S. refining capacity. In 2008, the oil and gas industry contributed 16.5% of Texas’ Gross State Product, while employing over 360,000 people.

Oil and natural gas companies such as ConocoPhillips, Exxon-Mobil, and Halliburton are headquartered in Texas, and these companies have enjoyed substantial support from politicians such as Governor Rick Perry, who has been an unapologetic ally of the coal, oil, and natural gas industries throughout his decade-long tenure. Indeed, Governor Perry has long been one of the most prominent anti-environmental politicians in the country. And yet, Governor Perry has overseen one of the greatest renewable energy success stories in the United States.

Wind energy accounted for almost 8% of Texas electricity in 2010, up from 3% in 2007. Texas is home to over 30 grid-scale wind farms (each with a nameplate capacity of at least 120 MW) for a total installed capacity of around 9,700 MW. The EIA reports that this is more than 25% of total installed wind capacity in the United States, and almost three times as much capacity as Iowa, the second-ranked state.

There are multiple reasons why Texas is winning the wind race in the US. True, the state is home to some of the best wind resources in the world. But as the stalled Cape Wind project has shown, strong winds do not necessarily translate to grid-sale renewable energy projects. Political, technical, and regulatory barriers all must be overcome for any significant grid scale renewable electricity rollout. Texas has managed to create a favorable policy environment by streamlining regulatory processes, tapping into rural development concerns, and supporting transmission and distribution projects, all of which allow investors to confidently sink money into utility-scale electricity generation projects.

Along the way, the Texas wind industry is establishing best practices not just for wind, but for all renewable intermittent electricity generation sources. Says Peter Behr of the New York Times,

“the lessons learned from the Texas wind power story are also writing the first chapters for new energy policies that will be required when the climate threat becomes a political reality. Grid operators who want to know how much wind or solar power the grid can handle look first to Texas for answers.”

Texas’ ability to formulate a comprehensive policy framework has been essential to supporting the deployment of grid-scale wind farms. Below are specific aspects to this framework, many of which could be replicated in areas of the country where wind generation rollouts face political and logistical hurdles.

Solving the Transmission Dilemma

The process of developing major transmission and distribution (T&D) projects for renewable electricity generation has proven problematic across the US. The main problem is the inherent paradox in which developers need transmission lines to build wind farms, but investors won’t build transmission lines unless they are confident that these lines will carry electricity. As these concerns started to arise in the early 2000s, the Texas legislature responded with a bill which called for the development of Competitive Renewable Energy Zones, or CREZs. These zones are the optimal areas for an electric transmission infrastructure that can move electricity from wind farms to major demand centers.

In July of 2008, the Public Utilities Commission selected a $4.93 billion transmission package capable of transporting 18,456 MW of new power from West Texas and the Panhandle to metropolitan areas. According to analyst Will Furgeson, “If the CREZ implementation is a successful antidote to transmission constraints, the plan could provide a model that might be duplicated across the nation.” The CREZ bill is an example of comprehensive infrastructure appropriation bill that attempts to solve the transmission dilemma in one fell swoop – compared to the on-again/off-again nature of federal production tax credits – which provides wind investors with greater incentives to sink costs into grid-scale developments. This also appears to be a good investment for taxpayers, as the one-time $5 billion transmission line investment is expected to save Texas consumers more than $3.4 billion a year on electricity costs and more than $1.5 billion a year on fuel costs.

Importance of Renewable Portfolio Standards

In 1999, Texas passed a modest renewable portfolio standard that was tucked into a much larger bill that deregulated the state’s electricity sector. The RPS was met four years ahead of schedule, so in 2005, Governor Perry signed a much more ambitious RPS which called for 5,880 MW of renewable generation by 2015 and 10,000 MW by 2025. Remarkably, this goal will be met over a decade ahead of schedule, as Texas has already reached 9,700 MW of installed wind capacity. According to the Environmental Defense Fund’s Jim Marston, “Wind is working so well that [Texas] doesn’t even have to continue to have mandates.”

At first, volatile fossil fuel prices were arguably the greatest driver for wind energy development, rather than the RPS -in 2000. Wind operators responded to a sudden natural gas price spike by offering long term fixed price contracts to customers, boosting the nascent wind industry.

Regardless of what the spark was, the RPS did push officials to take critical steps to integrate renewable electricity generation into the regulatory structure of state government. Some of the main impediments to the growth of grid-scale renewable energy generation projects are rooted in conflicts between government agencies and private stakeholders over pricing, land-use, grid usage, T&D infrastructure, and permits. With an RPS in place, Texas was obligated to formulate policies which could address those issues. At least 26 states have passed an RPS, which is a good first step to building a comprehensive grid-scale renewable generation policy.

Getting Grid Operators and Regulators on Board

The regulatory landscape in Texas has been just as valuable as the natural landscape in cultivating the most successful wind industry in the US in just a little over 10 years. Texas has a key regulatory advantage over other states in the country in that power providers and utilities operate almost exclusively within Texas borders.  By contrast,

federal policy on transmission is hogtied by regional conflicts over who pays for long-distance transmission lines for renewable energy.” Will Furgeson adds, “The lack of oversight from multiple state governments allows for a greater degree of adaptability for the industry. Wind developers can usually expect much shorter project timelines in Texas, due to the state’s permissive regulatory policies and business friendly environment.”

The key player for electricity regulation is ERCOT, the state grid operator, which handles more wind power than any other grid operator in the US. Each day, ERCOT orders the next day’s power for the state based on historic data and weather forecasting tools. ERCOT uses an open access policy for purchasing its electricity from generators, which means they will first purchase and dispatch the lowest cost electricity generation. Since wind turbines use a fuel source that is essentially free, wind operators can produce electricity at a low marginal cost, and thus they can sell power at competitive prices with natural gas, coal, and nuclear generated electricity. Federal production tax credits for wind energy, currently 2.2 cents/kWh, also help lower costs.

Solving the Intermittency Problem

The intermittency challenges facing a grid that gets 8% of its electricity from wind energy are substantial. ERCOT has taken measures to help alleviate intermittency problems and stabilize the grid, notably through its load demand program. Similar to demand-response companies such as EnerNOC, ERCOT signs contracts with major power consumers stipulating that, in the case of a rapid drop in wind-generated power, ERCOT will pay these companies to immediately reduce electricity demand and shift the excess power to the grid within minutes, averting a blackout. ERCOT has also switched from zonal to nodal pricing, a move that improves grid reliability, increases market efficiency, and enables transparency of wholesale energy prices. Nodal pricing improves marketing and operations efficiencies through “more granular pricing and scheduling of energy services,” leading to projected consumer savings of over $5.5 billion over the next decade.

Texas wind generators, regulators, and grid operators are already challenging some long-held assumptions about wind power. For example, grid operators around the world have expressed concern about the supposed cap of 20% electricity from intermittent sources that can be integrated into existing grid systems. Yet, according to an Austin utility manager, the 20% grid intermittency problem “isn’t nearly as intractable as it looked 10 years ago.” Common assumptions regarding intermittent energy sources can be challenged when utilities and power providers have a financial incentive to increase efficiency and cultivate in-house innovation. Other states are already looking to Texas as an example of how to structure their wind industry rollouts.

Turning Local Politics into an Asset Rather Than Liability

Technical and regulatory problems are not the only hurdles which must be overcome for renewable energy generation projects. Local politics and ‘not-in-my-backyard’ arguments are enough to sink promising wind and solar projects, even if such a project is financially and technically feasible.

In many areas of Texas, developers have been able to spread the message that wind farms can provide significant benefits for rural communities, which in turn has helped green-light numerous wind farms. In the dry, arid regions of West Texas and the Panhandle, large ranches that previously supported few crops or little livestock are faced with a new, potentially lucrative option. Some wind developers are willing to pay landowners hundreds of dollars a year for every wind turbine placed on their property. Since a wind turbine only occupies between 3-8% of the area leased by developers (wind turbines must be spread out to operate effectively), a farm or ranch can still be productive with other activities while generating revenue from turbines. In Texas, leases for wind farms are generally granted for 30 – 50 years, which means that landowners can depend on wind turbines to generate income for decades.

According to Clifford Krauss of the New York Times, “it has dawned on many Texans that wind power, whatever its other pros and cons, represents a potent new strategy for rural economic development.” Property values are doubling in some wind-rich counties, and tax revenue from wind developments provide local governments with tangible benefits from renewable energy. The Papalote Creek wind farm on the Gulf Coast is set to top the gas industry as the largest local taxpayer, only 2 years after the project’s completion. It is expected to pay 1/3 of the district’s entire tax bill by 2011.

Wind energy proponents across the country should pay careful attention to the specific stakeholders who will be affected by both generation and transmission projects. While opposition will continue for most large electricity projects, anticipating opposition and working with stakeholders to alleviate their concerns can help mitigate a local political backlash.

Leveraging Environmentalist Pockets in Conservative States

In many parts of Texas, wind energy’s low-carbon characteristics play second fiddle to rural economic development and a diversified energy portfolio. But in some pockets of Texas, clean energy proponents have pushed utilities to integrate clean energy generation into their electricity mix. Austin’s GreenChoice program, for example, allows consumers to pay a premium for renewable-generated electricity. GreenChoice has been the most successful utility sponsored voluntary pricing program in the US for the last 8 years, exemplifying how the purchasing power of environmentally conscious consumers can support renewable energy when such policies might not be feasible at the state level.

In Texas, environmental concerns (especially among urban populations) can effectively be tapped to support clean energy, as some consumers will voluntarily choose renewable premiums for renewable-generated electricity.  Similar programs in San Antonio and El Paso are meeting consumer’s demand for clean energy as well.

Conclusion

If renewable electricity generation can thrive in Texas, it can happen anywhere. But implementing major energy generation projects involves more than competitive pricing and a RPS mandate. As Massachusetts has experienced with its Cape Wind project, an environmentally progressive populace means little without the support and facilitation of public utilities, grid operators, and legislatures. Indeed, once the decision has been made to construct a new wind or solar farm, a myriad of challenges remain before such a project actually starts producing electricity. Texas has taken a nuts and bolts approach to developing a comprehensive wind energy policy, addressing such disparate though essential areas such as local politics, publicly funded infrastructure projects, and nodal pricing.

The Texas case also provides hints into the future of renewable energy in conservative and/or rural states, and may help to shift the clean energy dialogue to a more productive route. Overall, looking at clean energy technologies through the lens of an economic driver, rather than  costly mandated CO2-reduction measures, adds incentives for a wider variety of stakeholders while providing financial incentives for best practices. As AEL’s Teryn Norris and Daniel Goldfarb recently posted, President Obama adopted a similar strategy in his State of the Union address, calling for significant investments in the clean energy economy while neglecting to mention the word ‘climate.’ Such investments are a popular idea among many folks across the ideological spectrum, which might provide the critical leverage needed for grid-scale renewable energy projects in both red and blue states.

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Chris Head is a Contributor in AEL’s New Energy Leaders Project and his work will be regularly featured on the website.  The views expressed are those of the author and do not necessarily reflect the position of AEL.

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19 Responses to “The Curious Case of the Texas Wind Industry”

  1. Texas is also a long way from coal producing states like Wyoming. The reason Nebraska, who has more potential wind generation capacity per capita, has far less generation is its right next door to Wyoming, so getting coal to the generation plants is very cheap. Much more expensive to get it all the way to Texas, so wind actually makes an awful lot of economic sense, regardless of governmental incentives. This isn’t the case in a lot of states.

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  3. Well done, Christopher. We are now following @LeadEnergy from @WindSector on Twitter and anticipate more good stuff from your crew.

  4. Elizabeth_M says:

    How about the media discussing the actual Cape Wind permitting process rather than assuming it was done on the up-and-up. Public Employees for Environmental Responsibility (PEER) uncovered internal US gov. emails that admit proper enviro-studies weren’t done. Apparently, it was just too much work to do things right. Despite this, DOI Secretary Salazar personally approved the proposal — as a media event.

    Anyone who is concerned about the Earth should read these two PEER articles:

    http://www.commondreams.org/newswire/2010/12/23 “Federal Agencies Flying Blind in Cape Wind Approvals – Internal E-Mails Admit …”

    http://www.commondreams.org/newswire/2010/11/09-0 “Big Wetlands Losses Plotted … Corps Prepares Broad Exemptions …”

  5. Don Furman says:

    This is an outstanding article. Entirely accurate.

  6. Paul Singley says:

    I’m in Massachusetts and entirely FOR Cape Wind. People keep asking for “change” but when it comes time they’re afraid. We have had several wind turbines in operation for YEARS with few complaints, namely in Hull and Mass Maritime College, yet to listen to the people attending meetings the idea of local wind developement is an entirely new, unproven venture. FEAR OF CHANGE is one of the biggest hurdles for wind in this state.

  7. Anne Mahon says:

    Love Cape Wind! It’s all about clean air, a fresh free resource to capture that is the most wonderful alternative to the dirty alternatives that are subsidized by our tax dollars at 8x the rate of clean energy.

    I prefer to save our planet for the future generations. God Bless those willing to invest in the future of green energy….not to mention all the job creation for this generation right now, when we need it so very badly.

  8. [...] Project, explores the answers to this question in his recently published and article, “The Curious Case of the Texas Wind Industry”, and reveals how renewable energy can flourish in states where environmental and climate [...]

  9. tom durkin says:

    This is interesting. There are times you have to appreciate that LBJ’s spirit of pragmatism lives in some Texas policies and communities. Even in a fossil fuel state, they appreciate that fossil fuels do have externalities & that creating jobs in the US is important (but I thought Halliburton’s official address–@ least for tax purposes–was a PO box in the Bahamas).
    Anyway, the controversies here on Cape Cod are extensive and very political. Fish & Wildlife endorsed Cape Wind, as did Energy, MMS, & the Army Corps of Engineers. In terms of birds, Mass Audubon endorsed Cape Wind. Senator Kennedy and his friend Alaska Rep Young (because Alaska is so close to Cape Cod) pulled all the strings to protest Cape Wind. They did succeed in getting an IG report (see CommonDreams articles), but again, Fish & Wildlife eventually endorsed Cape Wind. The reviews have been far more extensive than other project, because those NIMBY people have a lot of political power.

  10. Mario says:

    One thing that this article does not mention is cost. Wind power in Texas is very economical. Today a new wind farm in West Texas will cost $30 – 50 per megawatt-hour, or 3 cents per kilowatt-hour. That’s very cheap. Cape Wind has signed an agreement to sell its power to National Grid for 20 cents per kilowatt-hour. Off-shore wind has some attractive elements, but cost today is not one of them.

  11. Stacy Clark says:

    First of all, great writing and research by Chris Head!

    Secondly, I love the comments provided by Anne Mahon and Tom Durkin!

    Finally, I speak as temporarily transplanted New Yorker/Bostonian living in Dallas.

    I am keen to see the federal government supporting the deployment of a comprehensive clean energy economy. Oddly, living in Dallas, I am lucky that I’ve been able to support the TX wind energy economy for almost 13 years! When Austin-based Green Mountain Energy arrived in Dallas looking for new subscribers (we were previously TXU customers), my son and I were one of the first families to “make the switch” and it has provided us both with a sense of pride. For 13 years, we have purchased 100 percent wind powered-electricty!

    Yes, it was originally more expensive than TXU (traditional fossil fuel-generated electricity), but I knew that it was our responsibility to support the cleaner alternative, as I knew it would drive momentum, investment, and ultimately, lower prices. And I was right…

    Dallas air quality still fails to pass EPA Clean Air Act standards, but the push for clean air and clean energy alternatives must continue because healthier air, asthma-free kids, lower health care costs, and blue skies are all a part of the iconic American dream.

    Stacy and Dylan (now 15) Clark
    Dallas, TX
    stacy@dallaswriter.com
    I welcome your views

  12. Stephen Peckham says:

    In response to Elizabeth who… Is obviously taking things out of context in an effort to confuse the issue. Can’t say that’s the first time on this project!

    First, let us remember that toward the end of Cape Wind’s review the U.S. Fish & Wildlife Service (FWS) (to whom most of these negative comments are sourced to have come from) issued a FAVORABLE Biological Opinion of Cape Wind that the project would not create a threat to the roseate terns and piping plovers, the 2 endangered avian species they were most focused on.

    Prior to that, in the nine years of permitting review, were there times when some agency staff at FWS did not see eye to eye with the lead reviewing agency (which in the early days was the US Corps of Engineers and later the Minerals Management Service)? Of course. But that is true whenever you have a complex multi agency review over several years.

    Most of this stuff, and the subsequent litigation that PEER filed, are material from the Department of Interior Inspector General’s investigation report on the agency’s handling of the Cape Wind review – and I should point out and as noted in the report, the investigation was performed at the express request of Senator Kennedy… It’s important to also note that the KEY FINDING of that IG’s report was that the cooperative agencies (including FWS) said that while they did feel some time pressure on producing the Final Environmental Impact Statement that that did not impact their [favorable] findings or conclusions. If you are interested in learning about last year’s IG report in more detail, here is that link:
    http://www.doioig.gov/images/stories/reports/pdf//Redacted%20report%20for%20Web.pdf

    Specifically on Cape Wind’s avian (birds) review, because of their review of the scientific surveys commissioned by Cape Wind, and because of their own scientific surveys, Mass Audubon Society (one of the nation’s oldest and most respected environmental and conservation organizations) came out in support of Cape Wind. To my knowledge… There is not a single wind farm in the world, on land or offshore, that has performed as much avian research as Cape Wind prior to construction. Is always possible to still do more – and are there some who will always call for still more? Yes and yes. But, I think a reasonable person would agree that it must be hard for anyone to describe a nine year permitting review as ‘rushed’ with a straight face!

  13. Stacy Clark says:

    Way to go Stephen! Facts….Just keep talking truth to power and clean energy will prevail…I love your insanely type-A recollection of all the details of Cape Wind’s laborious review…no other energy project in the US has undergone such a critical review AND passed with flying such colors! Wind is getting cheaper too! Stanford University’s Mark Jacobson co-authored a recent report concluding that the only thing in the way of the advancement of renewable power in the U.S. is the perceptions people choose to burden themselves with. Like anything else in life, clean energy is a conscious choice one has to make. I think it has already leaded to great new opportunities in TX and can usher in a thunderously innovative industrial American rebirth! What do we have to lose? Nothing, of course! But we have everything to gain. Sometimes the things that make the most sense (those V-8 “I should have thought of that” moments) are staring us in the face and we just need to open our eyes and our imaginations!

    I think clean energy is just that…an eco- and economic Evolution that we will easily embrace once we tangibly experience its benefits nation-wide!

  14. R Margolis says:

    I wonder if a factor in wind success in Texas is the current abundance of natural gas. Gas turbines help steady the grid for intermittent power sources. The next step will be to determine if energy storage technologies can be deployed cheaply enough such that natural gas is no longer required for this function.

  15. George Fuller says:

    The elephant in the room for these articles is generally the same. Converse to your assertion, which way are electricity rates going in TX? Up or down?

    “This (CREZ) also appears to be a good investment for taxpayers, as the one-time $5 billion transmission line investment is expected to save Texas consumers more than $3.4 billion a year on electricity costs and more than $1.5 billion a year on fuel costs.”

    If rates are NOT going down & the utilities are making the same ROI as before, then nobody is saving money.

  16. Ari Peskoe says:

    Chris – This is a very interesting article. I’m wondering if you have any thoughts on the recent electricity reliability issues in Texas.

  17. Dale Osborn says:

    The real development activity began when George W. Bush was governor and Pat Woods was PUC Chair; both avid supporters for fossil fuels. Central and Southwest Utilities commissioned deliberative polling and the citizens were so outraged that the gov, the PUC and utilities were “not doing their jobs” on renewables, that there was a huge political shift which resulted in Bush signing the first RPS legislation and Woods ultimately becoming a senior executive in a wind company. Bush never got credit for this. The deliberative polling was managed by several Coloradans inlcuding Ron Lehr. Texas learned that if we let the people speak then the politicians will follow. Colorado followed suit

  18. [...] Texas, the reigning champion of onshore wind, has received little attention for its offshore wind progress but may actually usurp the Atlantic [...]

  19. [...] Texas, the reigning champion of onshore wind, has received little attention for its offshore wind progress but may actually usurp the Atlantic [...]

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