The Texas Energy Professional Association (TEPA) met last week in Dallas for its annual member meeting. TEPA is a unique organization made up of REPs and ABCs in the restructured Electric Reliability Council of Texas (ERCOT) market. These two sets of energy professionals—Retail electric providers (REPs) and aggregators, brokers, and consultants (ABCs)—have unique hands-on experience in the Texas energy market, which gives them unparalleled expertise and understanding of energy and the energy marketplace for electricity and natural gas, providing a fascinating interchange and a full-day of discussion.
Themes Emerging at the Conference
A key theme to emerge from the conference is that blackouts are increasingly a high probability in ERCOT this coming summer. Issues discussed included:
- Implementation of financial incentive(s) for power plant construction will likely be necessary to alleviate ERCOT’s shrinking reserve margins.
- EPA’s recently announced last-minute inclusion of Texas coal-fired plants under the final Cross-State Air Pollution Rule (CSAPR) may be inadvertently providing incentives to shut down or reduce production from coal-fired power plants.
- Demand response may provide a solution, or alternately, demand response may only ease the reserve margin problem.
- Finally, the ongoing drought across Texas limits available water to power plants for cooling.
The conclusion, if left unstated, was that ERCOT may be facing a “perfect storm” of causes for blackouts next summer.
Another important theme emerging from the conference is that these days REPs and ABCs work together on a much more cooperative basis than at market opening at the start of the decade. The growing importance of ABCs is evidenced by 50 percent of commercial and industrial electricity consumed now being marketd through ABCs. Because of the rise in ABCs, both REPs and ABCs agreed that some sort of ABC certification process from the Public Utility Commission of Texas (PUC) or ERCOT is needed to ensure legitimate and ethical advice from ABC.
Speakers and Topics
In addition to the anticipated electricity supply shortage, keynote speakers Robert Bryce and Michael Osborne generated quite a buzz at the event with their contrasting energy futures—Bryce focusing on nuclear-natural gas and Osborne seeing solar becoming dominate. Bryce has written four books on energy and numerous articles in publications such as The Wall Street Journal and The New York Times. Osborne, wrote Silver in the Mine for Austin Energy and is one of three founding members of the Texas Renewable Energy Industries Association.
Bryce spoke about “Physics 101 and the Myths of ‘Green’ Energy.” With “Physics 101,” Bryce underscored Americans’ scientific illiteracy and innumeracy, highlighting two ideas—energy and power—to make his point. Power should be understood as energy flowing and controllable. So, the discussion should be about renewable power, not renewable energy. For example, Americans do not care what they put in their gas tanks (or how the power in their homes is generated, transported and delivered) as long as it provides power, in its “…cleanest, densest, cheapest possible form.” Bryce went on to talk about “the math,” by which he meant the enormous size of the total energy industry (global revenues of $5 to $6 trillion a year) and the scale within which various forms of power production fit into the overall picture. Bryce pointed out the rationale for decarbonization from an economic perspective, showing that global per capita CO2 output has decreased as the world, driven by economics, moved from burning wood to coal to oil to natural gas.
Osborne began his talk with the theme, “The Unified Photonic Energy Web,” an energy grid powered mostly by solar PV, by comparing our situation with our forefathers one hundred years ago. “In 1905,” Osborne related, “there were 6,500 Oldsmobiles, not quite 4,000 Cadillacs and 4,000 Ramblers made. Ford, Franklin and White made a little over a 1,000 cars each.” Ten years later, “…car manufacturers in the U.S. alone produced a million cars” and the cost of a car dropped to about a tenth of the cost of a house—a ratio that holds true to this day. Osborne sought to bring his projections for a photonic energy web into a credible target zone, if the history of the automobile is used as a predictor. Recent dramatic drops in the cost of solar power (e.g., in the last three years silicon dropped ten-fold, from $360/kilogram to $36/kilogram) lend potential to Osborne’s vision. Furthermore, solar power production in large quantities in our deserts now sells for around 8 cents/kWh, well in range of grid parity with fossil fuels in many regional markets.
Each speaker offered a unique and compelling, but contrasting view on the future of the energy industry. While he agreed that solar power has a future, Bryce explained that he favors solar power because it “produces power in phase with demand,” even if the payback on his personal rooftop installation is 20 years. Osborne emphasized climate change as a key driver for his solar-dominated energy view, while Bryce used economics to emphasize a future dominated by nuclear and natural gas-based energy.
The ERCOT market offers several challenges for participants and unique solutions due to its deregulated status, and the “island” nature of the ERCOT grid. While the conference focused on a wide range of topics, clearly the continuing drought and emission limitations under CSAPR are the biggest challenges facing ERCOT, and it doesn’t appear that there is a clear solution in hand for the anticipated problems facing ERCOT in the summer of 2012. How ERCOT deals with the anticipated supply shortage next summer will bear close scrutiny for lessons to be learned and business opportunities to solve future problems.
