At Senate Hearing, a Debate Over Renewable Energy Incentives

At a state Senate committee hearing Thursday, Public Utility Commission of Texas Chairwoman Donna Nelson sharply criticized renewable energy incentives, saying that they are a key contributor to the current strains on the electric grid.

“Federal incentives for renewable energy, I believe, have distorted the competitive wholesale market” on the Texas grid, Nelson told the Senate Natural Resources Committee.

Nelson said she believes those distortions are “one of the primary causes” of the current strains on the grid, and added: “I think we all need to move with extreme caution before adopting any additional incentives or mandates.”

Texas leads the country in wind-power production, thanks partly to long-surpassed renewable energy requirements passed in 1999 and 2005, and the state grid got 9.4 percent of its energy from wind during the first seven months of this year. Wind farms contribute to low wholesale electricity prices because they need no fuel to operate, unlike power plants that run on coal or natural gas, and therefore they can offer their power to the grid for a low price. Nelson and other Texas officials fear that the low prices discourage companies from building more power plants to meet the future electricity needs of the fast-growing state. (After her remarks in the hearing, which focused on renewable energy, Nelson went back to the PUC, which met Thursday to discuss the grid’s challenges.) 

Sometimes wind power’s price is so low that it’s negative, which especially worries Nelson. That's because of a federal tax credit that rewards wind farms for producing electricity regardless of the market price.

Philip Oldham, a representative for the Texas Association of Manufacturers, said that the lower prices caused by federal subsidies made it “virtually impossible for anyone else to build other generation you need” in some parts of the state.

The federal tax credit that helps wind is known as the production tax credit. It expires at the end of this year, and although wind companies are lobbying hard for its renewal, how Congress will act is anyone’s guess.

Environmentalists and wind advocates testified that the negative pricing of wind power amounts to a problem that is mostly limited to West Texas and is already being addressed. And even in West Texas, natural gas (which is also currently cheap) sets the price of power far more often than wind, according to a slide shown by Tom “Smitty” Smith the environmental group Public Citizen Texas.

The state-supported construction of $6.9 billion in transmission lines to aid wind power is expected to ease the problem in West Texas, where the lack of space on the transmission system contributes to the low prices.

Only two state senators, Glenn Hegar, Republican of Katy, and Robert Nichols, Republican of Jacksonville, attended the hearing. Solar-power advocates also testified. They urged the state to properly value their resource, which  produces the most power in the afternoons, when the grid is stressed by heavy air-conditioning loads.