The Great Texas Power Two-Step
Nothing better demonstrates the absurd results of reducing fossil fuel production while promoting alternative energy than the events in Texas this week, as reported by the Wall Street Journal editors. Texas and the federal government have been massively subsidizing alternative energy at the cost of conventional fuel producers. So much so that conventional fuel producers cannot compete on pricing with subsidized alternative energy resources:
Federal tax credits have encouraged an oversupply of wind power, which Lone Star State Republicans assisted last decade by charging rate payers $7 billion to build thousands of miles of transmission lines from West Texas and the Panhandle to big cities. Solar and wind supply about 30 percent of Texas power on average but sometimes can produce more than half.
Wind generators pocket a tax credit for every kilowatt hour they produce no matter if the grid needs it. A surfeit of wind is increasingly driving wholesale power prices negative—i.e., generators have to pay to offload their power. Wind producers can still make money because of the tax credits, but fossil-fuel plants that provide baseload power can’t.
These government funded sources are, of course, not reliable, and in February, 2021 there was a massive week-long blackout. The state Senate, faced with the reality of renewables—that they may be "renewable" but they are not reliable-- has come up with several plans. These include:
- Subsidizing gas generators to backstop renewables. But these would run only in emergencies, which would be extremely inefficient. If they ran full time, however, they’d be competing unfairly with existing gas generators. Moreover, Texans would be paying twice for this notion—once in taxes to cover the estimated $10 billion dollar funding of these generators and again in planned increases to consumers.
- Creating financial incentives to “peaker” gas plants that could ramp up as demand increased. Of course, this is nonsensical economically as it would cost three times as much as a baseload gas plant that runs 85-90 percent of the time.
In sum , trying to deal with the inefficiencies in energy production created by government subsidies will only create more inefficiencies. The problem, of course, is the market distortions caused by government subsidies. I expect other states will be faced with the same problem and the same impetus to create even more inefficiencies in energy production should they, like Texas, try to “level the playing field” in a desperate effort to keep the lights on.
How much longer will taxpayers and consumers be willing to endure this costly idiocy?