Report: How Texas Can Unleash the Next Wave of Electricity Market Competition

(AUSTIN, TX) A report released today by Environmental Defense Fund and grid reliability expert Alison Silverstein concludes that Texas’ competitive electricity market can meet future demand growth, increase grid resilience and keep energy costs down by leveraging demand-side solutions like energy efficiency, demand response and energy storage.

This report is the first to clearly outline the relationship between supply and demand for resource adequacy in Texas and present how demand-side resources can fit within Texas’ existing competitive electricity market.

Download “Resource Adequacy Challenges in Texas: Unleashing Demand-Side Resources in the ERCOT Competitive Market.”

“ERCOT’s successful competitive market has relied almost solely on the supply side of the equation,” said report author Alison Silverstein. “Demand-side management is ready for prime time, and Texas is ready for a new wave of market competition that will keep the lights on, keep costs down and reduce climate emissions and local air pollution.”

Demand-side resources include energy efficiency, demand response, distributed generation, energy storage, and a variety of automation and energy management systems. Demand-side options serve customers directly and can be aggregated and integrated onto the grid as resources to balance supply by enhancing real-time grid operations and long-term resource adequacy.

Products, technology and programs that reduce or manage electric demand have always been part of ERCOT’s competitive market. But they have not been used as much as they could to spur competition, create jobs and help maintain a safe reserve margin. Meeting electricity demand continues to be accomplished primarily by increasing generation capacity to meet projected total demand.

“Texas’ growing population and more extreme heat days caused by climate change will continue to strain our electric grid, endanger public health and disproportionately burden low-income communities who can’t afford to crank up the A/C,” said John Hall, Director, Regulatory & Legislative Affairs for EDF. “We cannot build our way out of this. Demand-side solutions are the cheapest sources of new electricity. They’re certainly cheaper than building new power plants, and they are often more cost-effective than utility scale wind and solar.”

“EDF was instrumental in changing Texas law twenty years ago to throw out a Texas-sized Welcome Mat to renewable energy, and in came the investment and innovation,” said Pat Wood III, president of Hunt Energy Network and former chairman of the Public Utility Commission of Texas and the Federal Energy Regulatory Commission. “If you want to see the future of electric power, look at Texas’ ERCOT market. And if you want to really understand the drivers, read Alison Silverstein’s excellent report. She and EDF have put forth a reasonable set of proposals to ensure the ERCOT market continues to deliver value and benefits for customers.”

The report outlines specific policies and market protocols Texas leaders can pursue to maximize demand-side resource potential. For example:

• Eliminate barriers to competition: Texas should eliminate the legislative and regulatory barriers that make it harder or less attractive to deploy demand-side resources, including any barriers to their participation in the ERCOT competitive market.
• Rely more heavily on energy efficiency: Energy efficiency measures, standards, programs and requirements should be strengthened, and local governments should be allowed to set higher or more aggressive standards for their region.
• Maximize energy impact of state funding: The state should require that any facilities planning renewable energy additions that use public funds first undergo an energy efficiency audit to ensure that the resulting project uses public money prudently, to save energy overall and to avoid over-investing in unnecessary infrastructure.
• Support local and government investment: The state should create new funding mechanisms to support local and governmental investments in demand-side management programs and technology.

“We know that the COVID-19 pandemic will have a significant economic impact on Texas and electric demand,” said Hall. “However, we expect the trends outlined in this report to hold true for the next decade. Texas will continue to grow, summer temperatures will continue to rise, and electricity demand will increase. Texas will bounce back, and we think smart electricity policy will help us bounce back better and smarter.”