AUSTIN, Texas (July 23, 2020) Today, Conservative Texans for Energy Innovation (CTEI), a member of the Conservative Energy Network, announced the release of an extensive research report titled: “Electric Competition in Texas: A Successful Model to Guide the Future”. The report was produced by two of the nation’s leading academics in the field of energy economics, Dr. Lynne Kiesling of Carnegie Mellon University and Dr. Michael Giberson of Texas Tech University.
In their wide ranging and comprehensive report, the authors provide a historical account of the electric power industry in Texas, chronicling the transition from a traditional state-regulated monopoly system to a competitive model launched with the passage of landmark legislation in 1999. The authors discuss the long-term results of that monumental decision to reform the state’s power market: empowerment of consumers, technological innovation, enhanced system reliability, and lower costs for both businesses and residential consumers. Additionally, Texans now enjoy a more diverse portfolio of power generation, led by the growing dominance of natural gas, wind and solar. This diversification has led to increased grid stability and greater reliability.
Underscoring the role of free markets instead of regulations, the authors state, “The market design in Texas does not specify a particular amount of generation that has to be held in reserve for reliability purposes, and relies instead on price signals in the wholesale market to communicate that buyers should conserve and sellers should generate more power.”
Kiesling and Giberson note that the fundamental economic principles of the supply-demand market remain an essential foundation of the electricity market design, writing: “Whether those projects are a profit-oriented firm selling energy, a budget-oriented family buying energy for cooking, cooling, and charging, or a small business owner who wants to save money and reduce greenhouse gases by buying wind energy, markets coordinate their actions and plans through the informative role of the price system.”
With an eye toward the future, the report highlights the essential need for the Texas competitive market to continue to adapt in order to remain successful. They highlight a key 2005 decision by Texas policy makers as an excellent example of how reliance on market forces should guide future policy decisions. That year, policy makers created Competitive Renewable Energy Zones (CREZ) in the wind rich areas of West and South Texas. By interconnecting these areas into the transition grid, previously stranded wind power has been utilized to meet demand in urban areas in other parts of the state.
Kiesling and Giberson state, “These state policies harness competition and markets to facilitate energy innovation by reducing transaction costs in adoption and deployment. As a result, wind and solar investments have grown in Texas since 1990.”
In fact, since 2005 the share of wind generation in Texas has grown from 1% to almost 16%. The authors point out that reducing these transmission constraints and congestion have also reduced the incidence of negative prices and as well as curtailment.
Changes in technology and the competitive regulatory framework in Texas are facilitating technological innovations which benefit both consumers and the overall system, such as active demand and demand response. High prices tend to occur in peak hours so by shifting demand to other hours, demand response reduces peak demand, which consequently reduces the chance of outages and overall transmission and distribution system costs.
The authors write about the promise and impact of cost-effective energy storage, calling it the “Holy Grail of the energy system.” The report lists specific examples of how independent storage companies are beginning to invest in Texas, and how this continued development will further increase utilization of intermittent resources such as wind and solar, increase capacity in the system, and improve economic efficiency.
The authors conclude that the Texas model has been frequently recognized as one of the best wholesale and retail electric market designs anywhere in the world. But they stress, “The Texas model is not deregulation, but rather regulatory reform that means ‘hands off’ certain decisions – generator investment and retail contract prices, for example – but ‘hands on’ in other areas – setting capital requirements to help protect consumers from defaults by their suppliers, discouraging the exercise of market power, and otherwise establishing a foundation for the emergence of a competitive market.”
Matt Welch, State Director of CTEI stated, “This impressive research document provides an important historical perspective on how Texas came to lead the nation in how we provide electricity to consumers, but more importantly, the report provides a framework for how we retain that national leadership and provide even greater competition, lower energy costs for consumers and more clean energy for our environment. We’re excited to make this research available to policymakers, industry stakeholders, and Texas citizens who will benefit from this information. We urge continued adherence to the market-based philosophy that has served Texans well.”
NOTE: A full copy of the report can be found on the CTEI website.
Conservative Texans for Energy Innovation, A member of the Conservative Energy Network, is an education and advocacy organization launched to promote energy innovation and clean energy policies grounded in the conservative principle of common sense, market-based solutions that allow fair competition and provide greater access to clean, affordable and reliable energy. For more info, www.conservativetexansforenergyinnovation.org. You can follow us on Facebook at https://www.facebook.com/cnsrvtxns4nrg/ and on Twitter at https://twitter.com/cnsrvtxns4nrg.
The Conservative Energy Network (CEN): Formed in 2016, the Conservative Energy Network (CEN) is a 501(c)(3) non-profit coalition of 21 state-based conservative clean energy organizations. CEN works closely with its state teams and allies to depoliticize energy issues by offering conservative, free market-oriented policy solutions that create jobs, spark innovation, conserve our natural resources, protect ratepayers, secure market access for new technologies, and increase our grid and national security. CEN supports and promotes the work performed by its state teams to educate policymakers and the public on the benefits of a clean energy transition. www.conservativeenergynetwork.org