What Is on the Horizon for Electricity in Texas?

This article is also featured in Energy Insights, which reflects a sample of ongoing research across the Center for Energy Studies’ diverse programmatic areas, all addressing the ever-evolving energy challenges across Texas, the U.S., and the globe. Read more from the inaugural edition.

Framing the Issues

On Jan. 14, 2025, the Texas Legislature will once again gather in Austin for its biennial regular session, and electric power will once again catch the attention of lawmakers. Between now and then, Texans can look forward to a long hot summer and the early weeks of winter. How will the power grid do?

Following the disastrous Winter Storm Uri in February 2021, freezes and heat waves have kept Texans focused on the power system and questions of reliability. In 2021, the legislature passed several measures to harden the Texas grid against freezes and to improve communications with customers and between state regulatory agencies. In 2023, the legislature adopted measures to finance new dispatchable energy resources. While these actions have improved grid resilience in the face of hard freezes, vulnerabilities lie ahead, and lawmakers are sure to debate how to address them.[1]

At least six different developments are unfolding to affect the reliability of the Texas Interconnected System, operated by the Electric Reliability Council of Texas (ERCOT) and the regional distribution networks operated by regulated utilities: 

1. Summer and winter weather extremes: Texas is experiencing unprecedented weather throughout the year: deep freezes annually across the state, spring heat waves, record-breaking sequences of high temperatures during the summer, disastrous storms, and short shoulder seasons. 
2. Intertwined natural gas and electricity networks: While there are tight dependencies between natural gas production and electric power generation, the two networks are regulated by different state entities.
3. Expansion of renewables and congestion on transmission lines: Wind and solar installations are located in regions of the state far from centers of electricity use, and the transmission lines in between are experiencing congestion. 
4. New electricity demand: Electric vehicle (EV) recharging is on the rise, while cryptocurrency miners, AI data centers, and microchip manufacturers, among other industries, are coming to Texas. All require large quantities of electric power, adding to the need for more installed generation very soon. 
5. Increases in variability of electricity generation and reliability challenges: As the share of renewables increases, variability increases, and this requires sufficient dispatchable generation for reliable service.
6. Isolation of the Texas grid: Members of the U.S. Congress are pushing to connect Texas either to the Eastern or Western Interconnection.[2]

Each of these developments poses challenges to the stability and reliability of the Texas grid, and all have historical analogs, both regionally and nationally.[3]

Developments To Watch

Summer and Winter Weather Extremes

The planners for the Texas grid have important questions to address regarding anticipated weather extremes: 

• Will there be enough energy? 
• Will power be available when and where it is needed? 
• Is the state prepared for extreme weather events?
• Are regional distribution utilities prepared for extreme weather events?  

Texas is not alone in facing these challenges as other states have likewise experienced extremely hot and dry summers, wildfires, polar vortexes, and other weather conditions that have tested their regional power systems. While system operators in Texas and elsewhere may be improving preparations for the next unusual weather system, it is difficult to imagine and model every contingency.[4] Much like the unanticipated cascading power failures of the late 20th and very early 21st centuries, unprecedented weather extremes have taken grid planners by surprise in recent years.[5] Following major blackouts, the utilities hardened the grid, strengthened coordination, adopted new operating standards, and, eventually, acquiesced to federal oversight of reliability. Following Winter Storm Uri, grid planners in Texas and across the country reassessed their demand projections, and regulators called for improved winterization of power systems. But are the safeguards introduced during the prior two legislative sessions in Texas adequate to prepare for future weather emergencies? The state managed through the extreme cold that gripped Texas from Jan. 14 to 17 in 2024, which may bring a sense that the grid is ready. However, that event was not as extreme as Winter Storm Uri, so the grid has not yet been tested to the same extreme. 

More recently, spring and summer storms have caused widespread and lengthy power outages in Houston and other areas, which is also related to the resilience of distribution networks. This has introduced new concerns about preparedness and recovery that have rightly attracted the attention of state leaders. Proposals to address distribution level failures include burial of power lines, replacement of older and weaker aboveground infrastructure, and enhanced tree and brush trimming requirements. Wealthier Texans are taking matters into their own hands by installing generators and energy storage batteries as backup power options. Meanwhile, policymakers will continue to weigh various proposals that could impact broad ambitions for increased electrification. Underneath it all is a set of fundamental questions whose answers will ultimately dictate next steps, such as: How can Texas best assure a reliable and resilient power system, even as weather and storm patterns shift? What will it cost? Who will pay for it? And through what mechanisms?

Intertwined Natural Gas and Electricity Networks

Reports investigating the causes and effects of Winter Storm Uri revealed the very tight interdependencies between natural gas production and distribution networks and between electric power generation and transmission networks. While some natural gas production and distribution equipment froze, Winter Storm Uri is not the first time producers have experienced wellhead freeze-offs. In fact, natural gas volumes in storage should have been sufficient to blunt the worst of the impacts on production. But a critical failure in coordination contributed to the disastrous failure. Compressor stations along natural gas pipelines need power to function. But natural gas pipeline operators had failed to identify themselves as critical load, which would have ensured that they continue receiving power during forced outages. No power to compressor stations meant no gas could move in the pipelines. No gas moving in the pipelines meant no gas was available to power plants. The intertwined nature of gas and power is now well understood by different stakeholders, so hopefully Uri served as a wake-up call. Regardless, these shortcomings contributed to the lengthy forced outages on the Texas grid, and there appears to have been very little coordination between the various actors in the gas and power systems, particularly at the regulatory level.[6]

Looking back at more than 140 years of electrification in the United States, we see other examples of intertwined energy networks, including coal and power during World War I, access to hydroelectricity for war production during World War II, and shifts in generation resources during the 1970’s energy crises, to name just a few.[7] Electrification has always depended on continuous access to sufficient energy resources. During Winter Storm Elliott in 2022, shortcomings in the integration of gas and electric power systems on the East Coast again exacerbated tenuous grid conditions. In Texas, in 2021 after Winter Storm Uri, the legislature established committees and councils to bring about gas and power coordination.[8] But separate state agencies regulate each industry, and the ways in which they are integrated are relatively opaque. Thus, the question remains: How well are the intrastate gas and power networks working together today?

Expansion of Renewables and Congestion on Transmission Lines

Texas now leads the rest of the country in the installed capacity of both wind and solar power generation. Most of this capacity is in the western, northernmost, and southernmost parts of the state — areas of low population and lots of windy and sunny days. There is potential for much, much more — with combined wind and solar capacity due to increase by more than 30% in the next year.[9] But ERCOT is already curtailing production on occasion when wind and solar generation are very high because the transmission network is simply not large enough in the right places to move this renewables-based electric power to the users in the central and eastern parts of Texas. It is a chicken-and-egg problem: Should investment in generation follow transmission, or should investment in transmission follow generation? 

The 2005 Competitive Renewable Energy Zones (CREZ) initiative illustrates that legislation establishing new renewables targets, creating priority investment zones, and defining transmission corridors can succeed at addressing this chicken-and-egg problem.[10] The question currently facing the legislature, as was the case in 2005, is whether to promote more renewables and transmission, more traditional generation and colocation with power users, or some combination of both. Beyond that, if the state intervenes, how should this be accomplished? With the experience of CREZ behind us, we can see that a wide array of issues will be at stake: cost and the funders, speed of transformation, environmental protection, new demand, landowner rights, and grid reliability. Resolution will not likely be quick or easy.

New Electricity Demand

Texas offers a very attractive home for a wide array of power-hungry industries — including cryptocurrency mining, AI data centers, logistics centers, and microchip manufacturers, plus growing EV charging. ERCOT is already predicting a greater than 25% increase in demand over the next 10 years, with peak demand increasing by 78%.[11] At the same time, some of these electricity users are ideal candidates for participating in demand-side management programs on the grid. That is, without severely harming their own production, they can halt their electricity demand from the grid during short periods to help balance generation and load. In fact, this can be profitable for them. But a central question remains: Where will these emerging economic drivers for Texas obtain their electric power?

At various points during the last century, the need for more power, quickly and in certain locations, drove innovation — especially expansion of power pools and methods to operate interconnected power plants continuously.[12] Today, emerging technologies that range from energy storage devices to grid-connecting devices may increase grid efficiency, and innovations may produce similar effects on the customer side of the meter. While the elected officials in Austin court new industries and tout the state’s benefits, they are also likely wondering if there will be enough electricity, and where and when it will be available. Just as importantly, it is important to understand whether current market frameworks inhibit or enhance technical innovation. These questions are already on legislators’ minds, as evidenced by various interim charges.[13] 

Increases in Variability of Electricity Generation and Reliability

At the same time that demand for electricity increases in Texas, and intermittent renewable capacity grows, there has been little recent investment in dispatchable sources of generation. As an ongoing trend, this threatens to undermine grid stability. Both the variability of wind and solar power and the fact that neither provides inertia to support the balance of load and generation on a grid are problematic. While options are available to remedy both intermittency and inadequate inertia, policy decisions at the highest level will influence whether generators, transmission companies, and the grid operator adopt new approaches.[14] From investment in new dispatchable generation and energy storage capacity, to new long-distance transmission, to encouragement of siting generation close to load centers, the future stability and reliability of the Texas grid can be improved. How the legislature takes up these issues will frame Texas’ potential for continued economic health and growth.

Isolation of the Texas Grid

It is not uncommon for explanations of the 2021 power outages to cite the isolation of the Texas grid as a factor. While it is true that the outages lasted longer in Texas than in the surrounding states, it is also true that neighboring regions experienced electricity shortages as well. Texas does have small, direct-current links to the Eastern Interconnection and to Mexico, but these lines were curtailed periodically throughout the week of the winter storms. We do not know what the electricity landscape might have looked like had Texas utilities built and maintained interconnections with the eastern or western grids over the past 80 years. We do know that efforts to achieve this in the 1970s failed, and studies completed shortly before and after that time forecast additional costs and reliability concerns for Texas power customers. Members of Congress recently proposed bills to require development of these links. With federal legislation on the table, Texas legislators may seriously reconsider what connection (using direct current lines) or interconnection (using alternating current lines) might mean for the state. Complex technical, infrastructural, land use, governance, reliability, and economic issues abound. But it would not be beyond the scope of the legislature, the Public Utility Commission (PUC), ERCOT, and the industry to apply their collective knowledge and research abilities to help all of us understand whether isolation is beneficial or detrimental for Texas power customers. 

Closing Remarks

In summary, there are several developments across the power generation landscape that have potentially major implications for ERCOT. Notably, while ERCOT is highlighted here, many of these issues translate to other regions. So, other regions will likely take note of what legislators and market regulators do in Texas. In the end, successful resolution of the various issues will carry significant benefits for existing Texas industrial, commercial, and residential consumers and have implications for the longer-term economic attractiveness of Texas. Suffice it to say, eyes will be, and should be, on the Texas legislature in the coming session.

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Notes

[1] For a summary of workshop proceedings focused on the issue, see Kenneth B. Medlock III and Shih Yu (Elsie) Hung, “Resource Adequacy in ERCOT: How Long-Term Market Design Reforms Could Enhance Reliability” (Houston: Rice University’s Baker Institute for Public Policy, December 12, 2022), https://doi.org/10.25613/8PEA-N556. 

[2] The isolation of the Texas grid is the topic of the “Connect the Grid Act,” introduced by Rep. Greg Cesar (D-Texas) (“H.R. 7348 — 118th Congress [2023–2024],” congress.gov, accessed July 19, 2024, https://www.congress.gov/bill/118th-congress/house-bill/7348/text). 

[3] Notably, most of these issues are discussed at length in several Baker Institute publications. See Peter R. Hartley, Medlock, and Hung, “ERCOT and the Future of Electric Reliability in Texas” (Houston: Rice University’s Baker Institute for Public Policy, February 7, 2024), https://doi.org/10.25613/EP4G-KW61; and Hartley, Medlock, and Hung, “ERCOT Froze in February 2021. What Happened? Why Did It Happen? Can It Happen Again?” (working paper, Rice University’s Baker Institute for Public Policy, February 2, 2022), https://www.bakerinstitute.org/research/ercot-froze-february-2021-what-happened-why-did-it-happen-can-it-happen-again. For a later edition of the report focused on the freeze in February, see Hartley, Medlock, and Hung, “The Texas Deep Freeze of February 2021: What Happened and Lessons Learned?,” Economics of Energy and Environmental Policy 12, no. 2 (September 2023): 5–29.

[4] ERCOT issues monthly outlooks and seasonal assessments for resource adequacy (“Resource Adequacy,” https://www.ercot.com/gridinfo/resource). 

[5] For reports on the two largest blackouts in the United States, see Federal Power Commission, Northeast Power Failure, November 9 and 10, 1965: A Report to the President (Washington, DC: Government Printing Office, 1965); and U.S. Department of Energy and Natural Resources Canada, U.S.-Canada Power System Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada Causes and Recommendations, (April 2004), https://www3.epa.gov/region1/npdes/merrimackstation/pdfs/ar/AR-1165.pdf. 

[6] Hartley, Medlock, and Hung, “ERCOT Froze in February 2021.”

[7] Julie A. Cohn, “Historical Cases for Contemporary Electricity Decisions” (Houston: Rice University’s Baker Institute for Public Policy, February 11, 2020), https://doi.org/10.25613/2DP6-6H47; Cohn, “Connecting Past and Future: A History of Texas’ Isolated Power Grid” (Houston: Rice University’s Baker Institute for Public Policy, December 1, 2022), https://doi.org/10.25613/dpmy-r389. 

[8] S.B. 3 established the Texas Reliability Council, the Texas Electricity Supply Chain Security and Mapping Committee, and requirements for coordination and collaboration between the Texas Railroad Commission and the Public Utility Commission of Texas (S.B. 3, 87th Leg., Prior to Reg. Sess. [Tx. 2021], https://legiscan.com/TX/text/SB3/id/2335915).

[9] See ERCOT, “Resource Adequacy,” https://www.ercot.com/gridinfo/resource. 

[10] See Olivera Jankovska and Cohn, “Texas CREZ Lines: How Stakeholders Shape Major Energy Infrastructure Projects” (Houston: Rice University’s Baker Institute for Public Policy, November 17, 2020), https://doi.org/10.25613/261m-4215. 

[11] ERCOT, “Load Forecast,” https://www.ercot.com/gridinfo/load/forecast; Claire Hao, “ERCOT CEO: Texas Power Grid Can Meet Unprecedented Electricity Demand Growth,” Houston Chronicle, April 24, 2024, https://www.houstonchronicle.com/business/energy/article/ercot-grid-demand-increase-19416568.php .

[12] Cohn, Matthew Evenden, and Marc Landry, “Water Powers: The Second World War and the Mobilization of Hydroelectricity in Canada, the United States, and Germany,” Journal of Global History 15, no. 1 (March 2020): 123–47. This publication is also available on the Baker Institute’s website (https://doi.org/10.1017/S1740022819000366). 

[13] For the full list of these interim charges, see “2024 Interim Legislative Charges,” April 11, 2024, https://www.ltgov.texas.gov/wp-content/uploads/2024/04/2024-Interim-Legislative-Charges.pdf. 

[14] Researchers at the CES have examined these issues in detail and offer numerous recommendations for improving grid reliability in Texas; for example, see Hartley, Medlock, and Hung, “ERCOT and the Future of Electric Reliability in Texas.” 

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.