How Texas builds and grows
How Texas builds and grows
More states should implement connect and manage interconnection processes
On August 23, 2023, the Public Utility Commission of Texas made a mistake. It wasn’t a particularly consequential one—electricity customers across Texas likely didn’t notice anything. But the mistake is revealing, even if it seems to have gone unnoticed.
The mistake is in a press release about a new technology keeping Texans cool in the summer heat. The release’s headline summarizes its contents simply: “‘Virtual Power Plants’ to Provide Power to ERCOT Grid for the First Time.”
To be clear, there’s a lot to be excited about in the release. ERCOT, the Electricity Reliability Council of Texas, is rightfully trumpeting its successful pilot, bringing new technologies to the state and the customer. VPPs, virtual power plants, are a networked group of energy storage and generation technologies. Unlike a typical power plant sitting in one place producing electricity from a single source, these are distributed generation or distributed storage devices across homes and businesses.
These distributed energy resources (DERs) might be someone’s solar panels, home battery, or even electric vehicle’s battery, but all orchestrated by the VPP to work in sync. These are innovations possible because of the last decades of improvements in generation, storage, and computer equipment. All Texans should be excited to be a leader in the area.
The mistake is that the PUC’s press release was at least two months out of date—someone beat them to the punch! David Energy, a retail electricity provider in Texas, had already been running a VPP for the two months prior.
As Duncan Campbell of the DER Taskforce commented, the story there is simple: they could, and so they did.
This style of permissionless environment is a hidden story behind much of Texas’s success integrating renewables and new technologies like batteries as they’ve become cost-competitive with traditional energy sources. Texas has a set of institutions designed to build and grow. It encourages the development of energy resources and experimentation with new technologies, with its rules creating a level playing field in contrast with the mandates and subsidies that other states, like California, have pursued. Of course, many of these Texas companies are likely still flush with federal dollars. But Texas’s system is different—a kind of platform that companies compete on.
There’s no need to negotiate with a utility to begin operating a VPP, and there is not even much need to ask permission. Instead, the companies that sell power to customers in Texas simply went out and did it, experimenting because they saw value for their customers. This is the same kind of entrepreneurship that you see in any other market—Texas proves that it is possible despite electricity’s unique attributes.
Policymakers should learn this lesson from Texas: energy innovation thrives in a market system. There’s little need to heavily bolster it with state support (though if you add the support, it goes farther in Texas). Of course, Texas’s government, through ERCOT, plays a role in maintaining the platform on which everyone competes.
The secret sauce is removing permission slips and letting a thousand flowers bloom. Powering Spaceship Earth requires remaking the world’s energy systems so that the same can happen outside of Texas.
Texas’s system has a history of success
Texas has decades of leadership in integrating renewables into the grid. In 1999, their legislature adopted a renewable portfolio standard (RPS), setting a goal for the state to install 5,000 MW of renewable capacity by 2015 and 10,000 MW by 2025.
By 2009, they had already met their 2025 goal. This success of clean energy has continued and expanded. Not only has Texas far outpaced its own RPS, but by the end of September 2023, the state had installed more utility-scale solar than California. The state is adding a lot of solar in particular, and more of all energy sources to its mix.
Pulling rough data together from the Energy Information Administration shows an interesting point about solar in Texas. There’s much more solar planned in Texas than in California. The existing and planned capacity data shows that Texas is outshining California.
To be fair, the wonks at EnerWrap project Texas really beats out California in 2026 rather than 2024 because of residential solar. But that Texas is beating California at all may surprise given the Golden State’s penchant for subsidies and the stereotypes of Texas as an oil and gas hub.
The solar expansion in Texas is impressive. Take this graphic of solar’s growth from the EIA. In 2019, just five years ago, the state had almost no solar!
At root, Texas gained an advantage over California because it has a system designed to build. The institutions in Texas encourage experimentation. Or, just like with David Energy’s VPP, they could, and so they did.
Texas’s ability to move and build fast shows up outside of solar. Other new technologies, like batteries, are succeeding. Today’s national electrical grid has 15.5 GW of battery storage. According to the EIA, “In 2023, 6.4 GW of new battery storage capacity was added to the U.S. grid, a 70% annual increase.” In 2024, Texas will add another 6.4 GW all by itself. That’s adding almost half of the total planned 14.3 GW!
How does Texas do it?
Texas’s system: connect and manage
Fundamentally, the remarkable success of Texas in surpassing its renewable energy goals and its peers can be attributed to a strategic emphasis on “connect and manage” policies. The bumper sticker understanding of the philosophy of connect and manage is that it streamlines the planning. Instead of an approval process studying whether or not additional generation capacity is necessary, Texas’s system allows generators to build in response to market signals.
In effect, connect and manage streamlines the integration of renewable resources into the state’s energy grid. It’s a large part of why so much solar capacity is being built in Texas. The Electricity Reliability Council of Texas, ERCOT, publishes prices and makes improvements to the transmission system in reaction to high prices caused by congestion and high demand on the electrical grid. This empowers generators to try their luck in building solar plants because they see money to be made. There are rules and procedures to follow, but it is a much easier system than elsewhere.
The outcomes of connect and manage are hard to argue with. Consider that in two years, 2021 to 2022, Texas connected about twice as much electricity as PJM, the grid operator overseeing areas in 13 other states. Again, Texas beats California in a rough comparison. For every megawatt of capacity that California added, Texas added 1.5 MW.
Again, Texas beats California in a rough comparison. For every megawatt of capacity that California added, Texas added 1.5 MW.
National laboratories studying electricity markets have taken note. The Lawrence Berkeley National Laboratory’s reports on those waiting to connect to the electrical grid confirm Texas’s success. ERCOT is the fastest to add power to the grid. The median plant takes about 20 months, and the average plant just a bit more.
The distinction between connect and manage and the typical process seems complex. In reality, it is quite simple: Texas moves fast because its system is designed to experiment. They can, and so they do.
The connect and manage system is inherently energy-only. This is broadly called ERIS, which stands for energy resource interconnection service. This simply means that the resource only sells its electricity on an open market.
In contrast to this, regulators in other areas require studies to establish that there is a need for additional generation capacity. In these cases, utilities want to know in advance that a newly connected resource would benefit the entire network. This is NRIS, the network resource interconnection service. The concern is that additional resources may threaten the grid operator’s ability to balance the grid. Or operators want to know that the electricity will be deliverable in hard times.
Take a concrete example. If you and I build a solar plant and want to connect it to the grid, we go through a connection request. This is the same inside and outside of Texas. Our Texan solar plant, once permitted, is built and connected and then bids into the market to sell its power against others. Outside of Texas, we must show we can contribute to meeting peak load during high-demand periods or under other stresses before we’re authorized to build and connect. The minor downside for our Texan plant is that it can be curtailed (basically turned off) for reliability and safety reasons. But the upside is a certain and faster process to market.
The 2024 Queued Up report from Lawrence Berkeley National Laboratory also tells us that our Texan solar plant will be installed years before our plant in, say, PJM. On average, getting an interconnection request approved takes roughly 20 months in Texas and 40 months in PJM.
Texas has a system designed to build and grow
The success of renewables in Texas is not just its philosophy of connect and manage. It’s an overall approach in favor of experimentation from the bottom up. The state has fewer veto points and focuses on growing its market through transmission buildouts.
Unlike traditional approaches that might bottleneck at regulatory or infrastructure hurdles, Texas embraced a forward-thinking model that prioritized the development of renewable resources, facilitated by legislative and regulatory support. Implementing Competitive Renewable Energy Zones (CREZs), for example, improved the state's transmission infrastructure. Rather than support specific generators, the state built transmission lines to connect resources to cities where there’s demand. Because these lines were built to connect wind and solar resources, there’s an implicit subsidy of renewable energies here. However, transmission line expansions grow the market size by connecting additional suppliers with demand. So this means that you can think of transmission expansions as more competition between generators.
Texas is also at an advantage with its streamlined regulatory environment. There are fewer veto points for opposition to exploit. In contrast, California’s system requires overlapping reviews and permissions. This does not just affect a project once but at multiple points. Several agencies are involved in permitting a transmission line, but the California Environmental Quality Act also mandates that counties and cities be involved by developers looking to build generation capacity. All of this adds more cooks to the kitchen. A 2013 law review article concluded, “California would have more success implementing its [renewable portfolio standard] if there were fewer agencies involved in the process, or at least a better defined agency jurisdiction, like Texas.”
To its credit, California has been an early leader in adopting renewable energy technologies and policies. Its problems have stemmed from the mandates and the too often unworkable nature of its bureaucracy. It’s unworkable mainly because of the vetocracy, as my friend and former colleague Will Rinehart has exhaustingly documented. Too many people, for too many reasons, can say no to changes or slow them down enough to kill them with a thousand cuts.
Adding veto points is expensive. Californian projects often make the news for their results, but not in a good way:
Neighbors opposing wind and solar developments,
Student housing and Habitat for Humanity homes denied under environmental rules,
Miles of unbuilt but well-studied and hyped high-speed rail.
At its core, the problem is that dollars spent on environmental impact statements aren’t dollars that replace dirty sources with clean sources.
There will always be differing opinions about the best plans and locations for developments, or you may dislike what a neighbor is doing with their farmland or rooftop, but the rules in too many places are built for the opposition. In contrast, Texas created by-right rules for solar. These prohibit homeowner associations from entirely preventing residents from installing solar on their homes. The rules include some aesthetic concessions to HOAs but give the homeowner avenues to negotiate with groups who were otherwise stymying residential solar rollouts.
Connecting more matters for the environment, resilience, and prosperity
So far, the argument for connect and manage has only been about environmental goals. But there’s also an argument for the connect and manage philosophy from its resilience benefits. Texas’s recent history with Winter Strom Uri and its future of hot summers makes a clear case for connecting more to the grid. A thicker market with more suppliers keeps prices in check and insulates from future shocks.
An analysis by Joshua Rhodes, an energy economist, shows that an additional 10 GW of solar during Winter Storm Uri would have lessened the harm from the storm. This additional capacity could have kept more homes lit and warm during the storm. In fact, Rhodes concludes that “the additional solar would have been able to cover between 25% and 50%+ of the total load shed for multiple hours per day making the outages much more bearable for those customers experiencing them.”
Rhodes’s analysis is an interesting one—though it sets an aggressive goal. Texas has about 13.5 GW of solar capacity today, so it is an analyzing a “what-if” that requires nearly doubling the amount of solar. His analysis also paints an incomplete picture because it looks only at adding solar. However, these limits turn out to be some good news on multiple fronts. First and fundamental, a variety of sources should be much more robust than putting all of our eggs in one basket. So, you might think about the analysis as a lower bound for the benefits of connecting more generation to the grid.
Next, even without including other generation technologies in the analysis, it’s less aggressive than it seems since the Energy Information Administration (EIA) predicted that Texas would add 10 GW of utility-scale solar in 2024. Just take another look at the rough data pulled from the EIA above.
Finally, it’s not just Pollyannish optimism about what could be in the future. Concrete optimism on Rhodes’ hypothetical comes from looking backward. In 2019, Texas only had about 2 GW of installed utility-scale solar capacity. Just four years later, it has almost 7 times that keeping Texans cool and bright.
In 2019, Texas only had about 2 GW of installed utility-scale solar capacity. Four years later, it has almost 7 times that keeping Texans cool and bright.
Ambitious goals are worthwhile goals
Perhaps the most valuable aspect of hypothetically doubling solar capacity in Texas is that it is the kind of ambitious thinking that policymakers should have in mind and that consumers should want. A future of energy abundance will arrive only because we set these kinds of goals. The future that Texas is building is bright, a testament to the power of market-based thinking in energy policy.
Texas can achieve ambitious goals by mirroring the freedom and dynamism of traditional markets. Communities across the state, empowered by batteries and smart technologies, transform from mere consumers to active participants in a diverse and robust energy ecosystem. Texas is not only poised to continue its leadership in renewable energy but also to pioneer innovative technologies that promise even greater efficiency and sustainability. This vision is rapidly becoming attainable, not a distant dream.
For those who build the right systems, the sorts of innovations that David Energy brings to its customers and a speedy rollout of clean technologies are inevitable. Maintaining a permissionless system for energy innovation will mean that the unbidden emergence of VPPs is only the tip of the iceberg.