Solar energy keeps oil flowing in Texas

Enough panels to light up Dallas by ’22

Texas, home to the world's largest oil reserve and America's biggest source of coal-fired power, is on the verge of a clean-energy boom.

Wind already supplies about 15 percent of Texas' electricity, enough to meet the state's quota for renewable energy. And developers are about to quadruple the state's solar capacity, adding enough panels by 2022 to light up all of Dallas.

They won't just power homes. Solar developers are responding to demand from oil and gas drillers, whose booming operations are gobbling up electricity and pushing prices to spikes above $1,000 a megawatt-hour.

Texas isn't offering the types of incentives that have spurred clean-energy booms elsewhere. That means, in Texas, companies are turning to solar based purely on economics.

"People are trying to get in as much solar in Texas as they can," Mike Garland, chief executive officer of San Francisco-based clean energy developer Pattern Energy Group Inc., said in an interview.

Building a solar farm in Texas currently costs about $32 per megawatt-hour, spread over the lifetime of the plant, according to BloombergNEF. That compares with $38 for a high-efficiency gas plant. Plus, solar farms can be built in six months, while gas plants can take years. That's crucial for Texas, which needs more power plants as soon as developers can put them up.

Solar's other key edge in Texas: It complements the state's sprawling wind farms. Turbines there generate most of their power at night. Solar, meanwhile, peaks with the sun, providing electricity when air conditioners are cranking and oil fields are bustling.

Plus, Texas is a relatively easy state in which to build, especially compared to California, said Tom Buttgenbach, CEO of solar developer 8minutenergy Renewables.

All of those dynamics -- combined with a growing pool of investors offering a variety of financing options -- have developers rushing into the state.

"There's tremendous incentive for solar to be built," Colin Smith, an analyst at Wood Mackenzie Power & Renewables, said in an interview.

Solar owes much of the opportunity to the oil and gas industry. Output in the Permian Basin of West Texas, which produces more than 4 million barrels of oil a day, has doubled in three years. Gas has become so plentiful that prices have turned negative as explorers pump more fuel than pipelines can handle.

Those drilling operations, along with the economic growth they've sparked, are pushing up demand for electricity. Existing power plants are struggling to keep up.

Electrical demand in Texas is forecast to reach a record 74.9 gigawatts this summer, topping the previous high set last July. The grid operator, the Electric Reliability Council of Texas Inc., has warned of shortfalls.

Prices, which during the day average about $32 per megawatt-hour, are apt to spike. They may even hit an unprecedented $9,000, the grid operator said.

"We're expecting a super-charged market this summer with volatile pricing," said Jeff Thibodeau, an analyst at Genscape Inc.

The Texas solar rush is essentially a big bet on those price jumps, said Jigar Shah, co-founder of clean-energy financier Generate Capital Inc. Traditional long-term contracts to sell power are rare in Texas. So most solar developers will sell power directly into the wholesale market.

"Solar companies think they can get paid enough on the spikes," Shah said in an interview.

The boom comes more than a decade after high power prices and strong breezes on the Texas Panhandle triggered a flood of wind-farm development. So many turbines were installed that by 2005 they were producing more power than the local grid could handle. Texas spent about $6.9 billion on new transmission lines to deliver 18.5 gigawatts of renewable energy to Dallas, San Antonio and other big cities.

Texas' solar boom may be fleeting, too. As more power plants come online, the price spikes that are making the market so enticing for developers will ease, bringing down overall prices, BloombergNEF analyst Joshua Danial said. He estimates that adding 5 gigawatts of solar would reduce Texas power plant revenue by 11 percent, or $1.43 billion a year.

But that's years away, and in the meantime, solar is finally having its moment in Texas.

"There's a lot of room for solar to grow," said Smith, of Wood Mackenzie Power & Renewables.

Information for this article was contributed by Simon Casey of Bloomberg News.

A Section on 04/08/2019

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