The Texas Electricity Story

Texas is a global electricity powerhouse. 

Future of Electricity in Texas

Texas is by far the biggest producer of electricity among the United States.  Florida, a distant number two, produces about half as much according to the U.S. Energy Information Administration.  And all of that electricity stays in Texas (more on that below).

Texas is also the largest consumer of electricity among the United States and its consumption has skyrocketed in recent years.  Meanwhile, throughout the rest of the United States, electricity consumption has been slowly declining and therefore the rest of the country really has no experience in increasing generation to match consumption (and vice versa). 

And on a global comparative basis, electricity is cheap and easy to obtain in Texas. 

These realities are the product of many factors which have developed over many years.

Deregulation and Competitive Markets

            Most importantly, the Texas electricity market was deregulated more than twenty years ago. 

Prior to deregulation, the Texas electricity market was dominated by geographically defined utilities which owned every aspect of electricity, from power plant generation to transmission to consumption.  Rates were set by the Public Utility Commission.  There was no consumer choice and no competition, and development and new investment was slow.

Deregulation and competition came first to the Texas generation market, and then the distribution market.  Utilities still own and maintain transmission lines.  But with deregulation, private entities can now invest in power plants.  This brings competition to the generation/wholesale market. Texas consumers can also choose among competing electric service provider (after comparing rates).  Competition always benefits consumers with lower prices.

This is where it gets interesting on the generation side of the equation.  What does it take for a private entity to be convinced that an investment in a power plant will be profitable? 

First, a power plant needs to have a cheap feedstock to run electric generators (like natural gas), or it needs to have an abundant and cheap alternative to running a generator, such as solar or wind.  Uniquely, Texas has both with basically unlimited natural gas and, uniquely among all states in the United States, abundant and renewable solar and wind.   These two categories of resources work together, because plentiful natural gas powering generators continually facilitates an easier and more reliable path to incorporating intermittent renewables into the electricity generation mix.

Second, a power plant needs to have a long-term commitment from a creditworthy buyer to purchase the power it produces.  Fortunately, Texas has plenty of buyers.

Texas has a huge (and growing) population.  Many of the fastest growing cities and counties in the United States are in Texas and everyone who moves to Texas needs electricity.  California has a large but shrinking population.  Which state is a better place to invest in a power plant? 

In addition, the shale revolution in the Permian Basin required huge amounts of electricity to power it and private investment stepped in to create that power.  Likewise, power-intensive industries such as refining in the Houston Ship Channel, Beaumont-Port Arthur and Corpus Christi require even more electricity, and over time, private investment supplied that power as well. 

All of these facts contributed to the continual and steady increase of both the supply of and demand for electricity in Texas.

In other states, electricity markets are truly a zero-sum game:  if someone consumes power, they are taking it from a finite supply and will thus deprive someone else of that power.  So other states are really in the game of managing a static (and often shrinking) supply of electricity.  But in Texas, with a growing supply of power and an overall regulatory framework and natural resources environment which incentivizes continual development, it is exactly the opposite.  More users, leads to more power, which leads to more users, and the cycle continues. 

In short, Texas economic growth, electric market deregulation, the shale revolution, the petrochemical industry and Texas population growth all work together and are interdependent with the result being Texas is the largest generator and consumer of electricity in the United States.  Remarkably, even still today, supply and potential supply of electricity (because of unused natural gas, wind and solar) is still greater than demand in Texas!

This is a perfect environment for the continued growth in Texas electricity generation and consumption.

The Unique and Independent Texas Grid

Then there is the Texas electric grid, operated by the Electric Reliability Council of Texas (ERCOT).  ERCOT is just the operator of the grid, it does not own any infrastructure.  Think of ERCOT as a traffic cop tasked with keeping traffic moving safely and efficiently but without owning the roads or the vehicles.  Consistent with the ethos and history of independence, the Texas grid is almost entirely unconnected with the other two grids which serve the rest of the United States.

The job of ERCOT is to keep electricity flowing throughout Texas.  This is a difficult balancing act, because electricity supply and demand must be continually balanced.  Because electricity cannot flow through transmission lines over great distances, electric generation needs to be geographically matched with consumption.  Heavily populated areas are more difficult to manage in this regard,  because millions of people are continually turning their lights on and off, all day and all night.   

So grid management is not easy.  But it is far easier in a single state, even one the size of Texas, than it is in the other 47 contiguous states which are lumped together and managed either by the Eastern Interconnection and the Western Interconnection. 

Texas Abundance

Because of its separate and independent grid, its deregulated generation and distribution markets, its abundant natural resources and growing population, Texas generates and distributes its own electricity within its borders, and is continually increasing generation and distribution, and does not have to account for the needs or desires or shortcomings of other states. 

Texas is thus an exceptionally abundant island of inexpensive electricity.