Texas’s Central Planning: Duplicating the Grid

By Robert Bradley Jr. -- March 16, 2023

“The answer to ensuring a reliable and affordable supply of electricity in Texas is not more subsidies, it is less subsidies. It is getting politicians out of the electricity business.” (Bill Peacock, below)

Economists have warned against central planning where a government monopoly is invoked and decisions are made from the center. Free-market analysts also long warned Texas that the government-enabled takeover of the grid with wind and solar (dilute, intermittent all) would cripple the ability of the reliables (gas-fired, coal-fired, and nuclear) to make the grid stable and secure short of ‘Acts of God.’

But Acts of Man won out, and the Great Texas Blackout of February 2021 happened. And since then, Texas politicians have been trying to fix the mess by imposing new intervention to work within the ERCOT/PUCT framework given more and more wind and particularly solar flooding into the system.

The latest political update comes from Bill Peacock, energy director of the Texas Energy Alliance.

Last week, the Texas Senate released two competing plans for addressing the reliability and affordability of the Texas electric grid. One was a package of bills (SB 6 and SB 7) by Sen. Charles Schwertner and endorsed by Lt. Gov. Dan Patrick which has become the unofficial “Senate Plan”. The other was SB 1752 by Sen. Bob Hall. Both claim to address the problems with the reliability of the Texas grid that became apparent to all during the 2021 winter statewide blackout, one of the worst blackouts in U.S. history.  

To be able to differentiate between the effectiveness of the two plans, it is important to understand why we are experiencing so many problems with today’s grid. While the system is complex, the primary factor leading to the unreliability and unaffordability of the Texas grid is government intervention.   Given this perspective, the clear winner between the two plans is SB 1752 by Sen. Hall. For the simple reason that SB 1752 goes directly at perhaps the most harmful intervention in the market, renewable energy subsidies.

Unlike, the Senate Plan which attempts to reduce the harmful effects of the subsidies, SB 1752 actually eliminates many of the subsidies. Gone would be the annual $27 million cost to consumers of the Renewable Portfolio Standard. Gone would be the annual $630 million cost of the CREZ lines. And gone would be the costs that often reach billions of dollars per year from the Texas PUC’s efforts to manipulate prices in a failed effort to address reliability.

On the other hand, SB 6 increases intervention in the market through its Texas Energy Insurance Program. The Program would impose a monthly “insurance” fee on consumers’ monthly electricity bill. The fee would in turn be passed along to transmission utilities, generators, and—indirectly—natural gas providers. The insurance program may or may not guarantee more reliable generation, but it will certainly guarantee more profits to those businesses. And it will also guarantee the end of what is left of competition and low prices in the Texas electricity market.

The answer to ensuring a reliable and affordable supply of electricity in Texas is not more subsidies, it is less subsidies. It is getting politicians out of the electricity business. Despite what many of our elected officials believe, markets work. Even electricity markets. The path to prosperity in Texas is to let markets —all of them—work. SB 1752 will move Texas in that direction.

Duplicating the Grid

The mainstream media (Houston Chronicle) and official studies will deflect blame from wind and solar because of this or that–and even argue for more of the same with battery storage to expense up the grid. But those in the industry know what is really going on. It is just energy addition, not energy transition. as Leen Wijers put it.

And the more honest media will make the same point. A recent Financial Times piece, Renewables: The More You Have, the More You Pay for Backups, (March 9, 2023) stated:

Cold, still weather in the UK this week triggered high demand for electricity at a time when wind turbines were idling. That forced National Grid to use a back-up coal-generation plant for the first time this winter. Depending on Mother Nature for electricity means accepting her inconsistencies. Back-up is required, and keeping it available has a cost…

Consumers end up paying to build little-used firm power capacity. The conundrum is that the greater the overall share of renewables in the energy mix, the more customers will have to spend on these largely redundant backups.

Texas is grappling in a second best world. Wind and solar politically have won time and again and wounded Texas. It began with Ken Lay and Enron–and continued with Texas leaders George W. Bush and Rick Perry, who fell prey to the special interests with all the money (see here).

Concentrated benefits, diffused costs. Lucre in the present versus problems in the future. What is new about politics in a ‘political capitalism’ economy?