DALLAS - Texas is unlikely to see any proposals for new power plants over the next few years as weakening demand leaves the state with abundant reserves, according to a report from Standard & Poor's.
"Expected load growth, which was until recently among the nation's highest, has tended closer to the median in recent estimates, and this largely stems from uncertainty surrounding the fortunes of the oil and gas industry," according to the report by Michael Ferguson.
The April 20 report suggests that the state may need to devise alternative strategies to comply with upcoming federal mandates.
The largest challenge facing the power market is the Clean Power Plan, released in June 2014 by President Obama, Ferguson said.
"Texas is among the states with the most aggressive goals," Ferguson said. "Its relative absence of environmental goals to date subjects it to more stringent rules going forward."
"Given the enormity of the state's carbon-reduction goal, which amounts to about 38% carbon reduction by 2030, we expect that a more stringent renewable standard could be one answer to the mandate," he added. "With the breadth of Texas' power market (Electric Reliability Council of Texas, or ERCOT), as well as the adequacy of natural gas in the state, some sort of carbon-trading regime could be implemented."
Despite the role of renewable energy in meeting the federal mandate, the Texas Legislature is taking actions that would reduce incentives for the alternative power sources to support the oil and gas industries.
The Texas Senate passed Senate Bill 931 on a 20-10 vote April 14 that would end the Renewable Portfolio Standard, which established a state renewable energy goal.
The bill would also close the $7 billion Competitive Renewable Energy Zone initiative, a power-line program that sparked huge investments in wind energy.
"Since renewable energy is the least expensive way to reduce climate pollution, it could have been an important tool in our efforts to comply with pending federal rules," Tom "Smitty" Smith, director of the Texas office of the consumer safety group Public Citizen said in a statement prepared after passage of the bill.
Killing the CREZ program would mean that the Public Utility Commission, the state's energy regulator, would lose some authority to approve large transmission line projects. A previous legislature granted the PUC that authority to complete the $7 billion project faster. Funding for the CREZ lines came from merchant-owned utilities in the state.
Low energy prices and slackening demand will also reduce calls for creation of a capacity market that requires reserves of power that exceed demand, S&P noted.
"The state's policymakers have historically waffled on implementing a capacity market," Ferguson said. "The introduction of such a market would undoubtedly improve the cash flow stability of ERCOT projects and would add reliability to the grid in times of extreme demand. However, this has been controversial because it permits certain plants to earn revenues without generating significant energy, potentially at the ratepayers' expense. Similar mechanisms exist throughout most of the U.S."
