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4 Things You Might Not Know About Electricity in Texas

Texas is a lot of things — big, diverse, gorgeous — but you can never say it’s boring. Its electricity usage is no exception.

Below we look at some surprising facts about power production and consumption in the Lone Star State.

Texas Is On Its Own Electric Grid

Texas is on its own electric grid. That is a fact many people weren’t aware of until the winter storm of February 2021 brought the Texas electricity marker into the national spotlight. T here are three electric grids in the United States: the eastern, the western, and the Texan.

Texas went this route around World War II when the Texas Interconnected System came into being. Texas electric companies joined ranks to take advantage of large hydroelectric dams. However, the federal government had just passed the Federal Power Act in 1935, giving them the right to oversee energy rates and sales for any electricity that crossed state lines.

Guess whose power didn’t cross state lines? Yes. Texas secured its own energy grid and has stuck with it to this day.

Texas Gets Overwhelmingly Powered By Natural Gas

Texas is the largest natural gas producer in the United States by a significant margin. And since the product is being extracted and processed there, why not use it to produce electricity?

Energy companies in Texas get about 47% of their power from natural gas. There are over 160 natural gas production plants in the state, and they produce around 20 billion cubic feet of natural gas per day — enough to account for a double-digit portion of the state’s annual GDP.

Texas Is A Renewable Energy Paradox

There are some strange juxtapositions in Texas when it comes to renewables. Of the state’s massive energy demands, only 1.1% is met by solar — yet Texas is second only to California for the number of solar rooftop installations. Around 780,000 homes in Texas currently have solar panels installed.

Furthermore, Texas uses the largest amount of fossil fuels in the country, from natural gas to coal to petroleum. However, they are also the top consumer of wind power. That makes Texas both a leader and a laggard in terms of renewables. It will be interesting to see how things develop in the coming decades.

Texas Consumes The Most Power Of Any Us State

That’s right. Texas is number one in energy consumption. The Lone Star State’s population is nearing 30 million, with an increasing number of mega-corporations and tech giants relocating thanks to the state’s inviting tax laws and labor supply.

In total, Texas consumed 13 quadrillion British thermal units of power in 2015 — that’s 13,000,000,000,000,000 BTUs. That’s 160% more than California’s consumption that year, 8 quadrillion BTUs — and nearly 100 times as much as the lowest consumer, Vermont (at 132 trillion BTUs).

A lot is happening in Texas: it’s an exciting proving ground for new technologies and developments among electricity providers.  The Texas electricity market place has many layers of market participants.

Vault Energy Helps You Find Cheap Electricity in Texas

Vault Electricity is here to help you compare electricity rates in Texas, finding the best rates among all the state’s electric companies.

Exploring Long-Term Energy Trends in the United States

The 2021 Energy Information Administration (EIA) Annual Energy Outlook report offers a snapshot into current and long-term trends in American energy behaviors. The ongoing pandemic has undoubtedly skewed recent data, with many consumers experiencing increased electricity rates due to the pervasive work-from-home culture. Looking beyond the pandemic, what can energy companies and individuals expect in the next few years — and even decades? Some of the most notable predictions suggest a major shift in types of fuel used to generate electricity as well as a significant generational change in consumer choices toward more energy-efficient options.

Fossil Fuels Take a Back Seat but are Still Along for the Ride

Energy experts are already witnessing a decline in fossil fuels, specifically coal, within the U.S. electricity landscape. In many states, especially in Texas, natural gas and coal, while still the dominant players in the state’s electricity market, are experiencing significant competition from renewables. A decade ago, 37% of the power that Texas electricity providers distributed was coal-generated. Today, at least three of the coal-fired facilities have closed. In general, the U.S. will likely experience increased production in natural gas, largely for industrial purposes and international export. However, natural gas use in the U.S. residential sector won’t experience much growth at all; improvements in energy efficiency will diminish the demand for natural gas heating and electric use.

Climate Change Burdens the Energy Grid

Devastating weather events are on the rise, unfortunately. Wildfires out West, winter storms down South, and massive hurricanes along the coasts are par for the course each year. Should these trends continue, scientists predict an increased burden on the energy grid. Heating and cooling needs in response to severe temperature changes will challenge both power’s reliability and energy rates. One can hope that as coal’s prevalence ebbs and renewables grow, severe weather events will stabilize. Nonetheless, electricity providers are encouraged to invest now in preventative measures to better protect the grid in response to climate change.

future electricity grid

Renewable Energy on the Rise

Renewable energy, especially wind and solar, presents a key player in the U.S. energy market’s future landscape. The EIA predicts that the electric grid’s reliance on renewable energy will double over the next few decades. Texas consumers are already benefitting from a massive initiative in wind power; the Lone Star State has invested billions to better integrate Texas electric companies and the wind industry. The U.S. Department of Energy describes wind power as a low-cost option for electricity generation. Texas electricity rates and rates around the country will likely decrease if more renewables are integrated within the grid. Expect more and more electric companies to offer renewable options for consumers seeking to decrease their carbon footprint. Currently, if one were to compare electricity rates, selecting renewable offerings doesn’t guarantee cheap electricity, but as technology improves, renewable energy rates will become much more affordable.

Consumer Behaviors Lean Towards Energy Efficiency

Long-term data suggests that individuals are opting for more energy-efficient and alternative-fuel vehicles. Starting in 2030, the EIA predicts a sharp increase in electric-battery-powered vehicles, though gasoline will remain the largest contributor for passenger vehicle fuel. Within the home, more and more Americans are selecting smarter technologies that save money long-term on utility bills, like thermostats and kitchen appliances. Millennials and Generation Z, in particular, are overwhelmingly concerned with climate change, leading to more environmentally-conscious consumer decisions as these populations age and their decisions affect the economy.

What is the Impact of Wind Energy on Texas Electricity Rates?

Texas is a leader in wind electricity. The state gets a substantial amount of its power from wind turbines. The percentage of electricity coming from wind has increased steadily in Texas over the past couple of decades. But what impact does all of this wind power have on Texas electricity rates?

Electricity rates are low when the wind is blowing because electricity prices in Texas are based on the wholesale electricity market. The  providers pay a generator (coal, gas, or wind) for electricity at a price per megawatt hour that fluctuates based on market demand. Since wind power costs less than coal or natural gas-based generators, it’s can often be cheaper for electricity companies to buy  from wind farms.

Timing is important when it comes to wind energy

Electricity rates are low when the wind is blowing. Wind, especially in Texas, has a habit of blowing more when electricity demand is at it’s lowest. The peak season for wind in Texas is during the spring and, in particular, at night. Because the need for air conditioning is relatively low on spring evenings in Texas, wholesale electricity rates can plummet when electricity is being produced faster than it is needed for the grid.

This can be an opportunity for savvy consumers. This imbalance between supply and demand and the resulting price swings is why time-of-day plans such as the TXU Free Nights plan have become popular in Texas. TXU was one of the first to introduce such plans. But today many electric companies in Texas offer similar plans. Many consumers are able to shift their habits and use more of their power during these periods where electricity is sometimes free. This results in overall lower electricity rates.

Improving technology makes wind energy more competitive each year

Some of the recent improvements in wind turbine technology include taller towers, increased efficiency, onsite assembly and construction. Bigger blades are also an improvement because they increase power output. Increased efficiency means it requires less input to produce the same amount of electricity. With onsite assembly and construction, turbines can be assembled quickly with less expense. This has lead to a proliferation of wind turbines in West Texas.

A major portion of the cost of wind turbines is the initial construction and assembly. The average wind turbine can last as long as 20 years. Wind turbines spur growth because developers only need to deal with transport and installation costs, not the costs of purchasing land and building a tower. A single large wind turbine creates an estimated $6 million over its lifetime in savings for equipment manufacturing and almost $5 million in health and pollution.

Natural gas still drives the cost of electricity in Texas.

“Even though electricity rates have been going down, a large percent of that is due to natural gas prices,” said Paul Wattles, former director of energy markets at the Electric Reliability Council of Texas (ERCOT).  “The electricity generation mix has changed significantly over the last few years, but natural gas is still the largest source of electricity.”

The electricity generation mix has changed significantly over the last few years, but natural gas is still the largest source of electricity.  According to Wattles, electricity rates tend to go up when natural gas prices go up.

Expect wind energy to decrease electricity rates in Texas going forward

Wind relied heavily on government subsidies in the past. Today wind energy can compete on it’s own merit. The technology has improved to the point that with the proper infrastructure in place, wind energy can have a decidedly positive impact on electricity rates. This is a trend that is expected to continue for many years to come. Even without major new breakthroughs in technology, incremental improvements will continue for the foreseeable future.

Why Utility Scale Battery Storage is Important for the Growth of Renewable Energy in Texas?

Renewable energy and the Texas electric grid

Wind and solar energy are critical components in the future of the Texas electricity grid. The advantages of renewable energy sources are well know. Cost is one of the traditional drawbacks of renewable energy. But cost is quickly becoming a non-factor when choosing renewable energy sources over fossil fuel sources because the price of both wind and solar electricity has plummeted over recent years thanks to advances in technology and economies of scale. However, one major hurtle remains to be cleared before wind and solar can be depended on as the cornerstones of an electric grid. That is the problem of intermittency and predictability.

Electric Companies are investing in battery storage

For years, renewable energy technologies have been lauded for their ability to bring constant, clean energy to the world. But there’s always been one problem: they can’t produce power when people need it. That’s where battery storage comes in. Electric companies are now investing billions into large-scale battery storage facilities that will provide a much-needed solution for the intermittent nature of renewable energy. When attached to solar panels or wind turbines, these batteries can store electricity generated during off-peak hours.

Solar and wind power are the most sustainable sources of energy, but these clean forms of power generation need storage to provide power when the sun doesn’t shine or winds die down. In order for renewable energy to be a reliable source of electricity, large scale battery storage is necessary. This means that renewable energy can constantly meet power demands round-the-clock.

Large-scale battery storage provides reliable and affordable energy storage for renewable energy

Utility-scale battery storage is a way for electric utilities to store electrical energy so that it can be accessed when needed. Older battery technologies have been used in the past, but they were not economically viable because of their high cost and low efficiency. Recent innovations, however, have enabled the widespread use of utility-scale storage systems.

There are a few types of utility scale batteries that provide energy storage: lead-acid batteries and lithium ion batteries. For example, a lead-acid battery has a life of about 8 years and can be used for peak shaving (shaving off the peak demand for power) and load leveling (using them to make sure there is always enough electricity on hand). Lithium ion batteries last longer, about 10 years, and can be used for peak shaving and for load leveling.

Large-scale battery storage is coming to Texas

Large scale battery storage has been implemented in other countries, such as Germany, to make their energy grids more reliable. Texas too has a number of projects underway to store excess electricity from the electricity grid during times of high output and low demand. This electricity could be bought up from the grid when real-time electricity rates are cheap and feed back into the grid later when more power is needed by the system.

The growth of renewable energy will be dependent on the ability to store excess power. Large scale battery storage is an important part of this process. Over the years battery technology has seen a series of incremental improvements. Over time, these have added up to the point where utility scale battery storage is starting to become economically viable. More of these projects in the Texas market will facilitate the continued transition of the Texas electricity grid away from coal and natural gas.

Why Does The State of Texas Use So Much Electricity

Texas consumes more electricity than any other state in the country. Electricity consumption rates in Texas are among the highest in the world, and it’s not uncommon for Texans to pay large electricity bills even though the cost per kWh is low compared to other locations. Texans like to run their air conditioners year-round, and hot summers often lead to increased demand for power from homes and businesses alike.

Residential electricity usage in Texas

In the Summer of 2018, Texas was the leading producer of electricity in the U.S., generating more than 132,000 megawatts of electricity. This means that about 30% of all power generated in the U.S. came from Texas. This trend continued through 2021 and expected to continue through 2022 and beyond. The abundance of land in the state allows for the building of larger homes. This combined with the heat of Texas summers leads to a large per capita consumption of residential electricity. Despite this, electricity in Texas is not expensive when compared to other parts of the country. The increasing price of natural gas has been a contributing factor in increasing electricity rates in the Lone Stare state recently. Looked at over the loner term, however, the competitive nature of the Texas electricity market has kept electricity rates cheap when compared to other states who use large amounts of electricity such as California or New York. Looking forward, analysts predict that Texas will continue to have abundant sources of cheap electricity because of its large and growing base of wind and solar electricity.

Texas Population Growth and the Demand for Electricity

Recent years have seen net population migration into the state of Texas. People have been leaving California and moving west to take advantage of the many things the state of Texas has to offer. The growth in Texas population is increasing the demand for electricity. The state uses so much electricity because of the high levels of use during the summer months when Texans are out and about, cooling off in air-conditioned living spaces.

Industrial Energy Usage in Texas

Industrial facilities in Texas use vast amounts of energy. In fact, the total energy usage is equivalent to the electrical needs of over 15 million homes.

Industries account for 54% of power usage in Texas, which equates to about 150 million megawatt hours per year.

In Texas, the largest energy consuming industries are the oil and gas industry, manufacturing, followed by transportation. The top five industries in Texas are the oil and gas refining industry, metal fabrication, petrochemical manufacturing, food manufacturing, and electric utility service providers. These industries combined account for over 75% of industrial emissions in Texas.

Renewable Energy in Texas

Power generation plays an important role in reducing pollution caused by the various industries in Texas. Texas has the largest wind energy capacity in the United States and is one of the biggest producers of electricity via wind energy in the world. The state’s Big Bend region produces more than 3,000 MW of power which is more than any other state.

While the state’s solar industry is not huge, it is growing rapidly. The combination of available land and near year-round sunshine make the state the perfect location to host solar farms. And the large rooftops of homes in Texas population centers like Houston and Dallas/Fort Worth are increasingly adorned with rooftop solar panels.

Big State, Big Industry Means Big Power Demand

Texas uses a lot of electricity because it’s large and growing population and healthy industrial base. Add that to the fact that Texas’ southern location makes it one of the warmest state’s in the country and it’s no surprise that the state consumes so much energy. Despite that, the state is largely energy independent given the large amount of fossil fuels it produces and it’s independent electricity grid. Texas is the only state in the continental US with its own separate electricity grid.

The Disaster that Shook the Texas Electricity Market

By now, the whole worlds know about the disaster that struck the Texas electricity grid when winter storm Uri struck the state in February.  There is no sugar coating it.  The debacle in February represented a failure of every level of the Texas electricity structure.  One of the world’s major energy hubs was unable to keep its citizens from freezing in their homes.

The Texas wind energy sector is one of the largest in the world but struggled to operate under the severe and prolonged freezing temperatures.  But wind was not the only or even the major contributor to the failure of the grid to supply enough power to keep the lights on for Texans.  The entire grid infrastructure was caught unprepared and under-winterized.

Texas still gets its largest portion of electricity from natural gas powered plants.  These failed in large numbers too along with coal and even nuclear power.  The winter blast affected all of these sources in different ways.  They all failed when they were needed most, leaving grid operators facing a nightmare scenario.   As the temperatures plummeted and demand for electricity skyrocketed, power plants began failing in rapid succession.  This was setting up a black swan scenario that could have resulted in a catastrophic failure that could have resulted in massive damage to the state’s electricity grid.  Residents could have been without power for months as much of the grid would have to be rebuilt.

In order to prevent the grid from succumbing to a cascading catastrophic failure, grid operators had to take the drastic step of off loading demand from the grid immediately early in the morning of February 15th.  And they had just moments in which to do it.  With snow covering virtually the entire state from Dallas to Houston to the border, they began cutting power to homes and businesses.  This action may have saved the grid from long term damage but it began a days long stretch of misery for Texans who would not be able to keep their homes warm.

 

Wholesale Electricity Rates Soar

The Texas electricity market is structured to incentivize private energy producers to build enough capacity to support the states’s electricity needs.  This is done by using the free market as a mechanism to set prices high enough in times of high demand to make it worth while for companies to invest in new power production.

Wholesale electricity rates update in real time to reflect the current demand for electricity within the marketplace.  On a typical mild spring night in Texas, the prices in the wholesale electricity market bottom out – often coming close to zero.   On hot summer afternoons, the spot price for electricity in Texas typically spikes.  The maximum allowable rate in the Texas electricity wholesale market is $9,000 per megawatt hour.  Over time the average price is around $50 per mWh.  This translates to about 5¢ per kWh.

One of the roles of Retail Electricity Providers (REPs) in Texas is to smooth out the prices by taking on the risk of volatility in the wholesale market while offering a more consistent rate to end users of electricity.

 

Shocking Electricity Bills for Some

The most sensational aspect of the misery suffered by Texans that week were the eye popping electricity bills reported on social media and evening news reports.  There were reports of electricity bills of over $16,000 for just a few days of electricity.  This however was not the experience of the typical Texas electricity consumer.  These bills reported in the media were largely, if not exclusively, from customers of the electricity provider Griddy Energy.

Griddy built their business by removing the safeguards provided by traditional electricity providers and exposing their customers directly to the prices of the wholesale electricity market.    Customers paid Griddy a monthly membership fee to gain access to the wholesale rate for electricity.

Most of the time this worked out great for Griddy customers because most of the time wholesale rates are lower than the rates one will find on fixed rate plans from Texas electric companies.  But when things went terribly wrong on the Texas electricity grid these consumers found themselves trapped.  They had no choice but to pay up to $9 kWh for electricity or turn their power off and freeze.

For some perspective, a home that uses 2000 kWh of electricity in a month may expect an electric bill of about $200 if we assume an electricity rate of 10¢ kWh.  If that same consumer had to pay $9 kWh, it would result in an electricity bill of $18,000!

For unsuspecting consumers, gambling on the wholesale electricity market was like canceling your homeowners insurance.  In most months you would save money because most of the time insurance isn’t used.  You could save money every month and could save money for years.  But when disaster strikes you could end up paying a ruinous amount of money.  Note: As of February 26th Griddy has been barred by ERCOT from participating in the Texas electricity market.  Their customers have been transitioned to other electric providers.

The vast majority of residential electricity users in Texas are on fixed rate electricity plans (or at least plans where rates are bound within a certain range).  This means that even as the wholesale electricity market shot to 180 times its typical price, electricity rates on bills stayed within the expected range.  For most Texans their electricity bill might be higher than normal to reflect higher usage during that period but will not be thousands of dollars higher than usual.  Ironically, some consumers may not see their bills go up at all since they were without power much of the time when temperatures were at their worst.

Renewable Energy Could Overtake Coal For Electricity Production In 2020

New data shows that the rest of the U.S. could be following Texas with renewable energy set to surpass coal as a source of electricity for the first time. Renewable energy is booming across the U.S. now that solar and wind are exponentially cheaper than they were a decade ago.

Although Texas passed this threshold last year, this will be the first time that the U.S., as a whole, is set to have renewable sources of energy overtake coal for the production of electricity.

Will Coal be another victim of the Coronavirus pandemic?

With businesses shutting down nationwide because of the COVID-19 pandemic electricity usage has declined precipitously.

Because coal plants are more expensive to run than natural gas, there has not been a lot of justification for a resurgence of coal. Or in other words, as businesses are shuttered, coal plants continue to gather cobwebs.

As mentioned before, Texas has seen a decline in coal for many years. This was first driven by cheap natural gas and in recent years more so by the proliferation of wind energy.  This year, Texas has almost tripled the amount of electricity derived from renewable means over coal production. Of course, a lot of this has to do with large renewable energy infrastructure that Texas boasts, but it is still a telling detail.

Will Coal Rebound Later This Year?

The question that many are asking is will coal rebound later this year?

Many are expecting a resurgence – or a brief return to form – for coal once business reopen. More than likely though, keeping coal plants running will continue to be more expensive than they are worth.

After all, coal plants have fallen below 50 percent of operating capacity, meaning that they are quickly making less sense to keep running. Especially with the EIA projecting average coal consumption to decrease by 23% in 2020.

Their rationale behind the percentage is derived from low natural gas prices, the COVID-19 economic impacts on the coal industry, and an already strong uptick in renewable energy sources.

Texas has only produced 16% percent of energy from coal so far this year. It seems safe to say that alternative renewable energy models are cheaper and more sustainable  in the long term than coal.