Windmills in West Texas

Georgetown, Texas: good intentions, poor execution

4 min read

08 Oct 2020

Text

Lorelei Yang

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123RF

4 min read

08 Oct 2020

Text:

Lorelei Yang

Photo:

123RF

When thinking of transitioning to 100% renewable energy, Georgetown, Texas shows that renewable sources are just one piece of the decarbonised electricity puzzle.

In 2012, Georgetown, Texas set the ambitious goal of powering itself with 100% renewable energy. When the city reached this goal in 2015, it was catapulted into the national spotlight. Former U.S. Vice President Al Gore praised Georgetown for demonstrating that “the power supply is not only more affordable, [but] the cost is predictable for at least 25 years into the future and really beyond that”.

However, five years later, Georgetown’s plan hasn’t yielded the expected affordability benefits. Over the last four years, the town’s 71,000 residents have seen electricity charges rise by more than USD 1,000 per household. From 2015 to 2018, the city budget lost USD 29.8 million due to rising electricity costs. Georgetown’s electricity costs were USD 3.5 million over budget in 2015. They rose to USD 6.3 million over budget in 2016, the same year that Georgetown Mayor Dale Ross committed the municipal utility to 20- and 25-year wind and solar energy contracts to deliver on the 100% renewable pledge.

After all the praise and support of Georgetown push towards 100% “affordable” renewable electricity, the question remains: what went wrong? Was there missing information that would have shown the city its renewables targets were unreachable? 

Retracing the steps

Prior to understanding where Georgetown’s strategy went wrong, it is important to understand the Electric Reliability Council of Texas (ERCOT), which acts as the state’s electricity market. According to Kyle Harrison, Senior Associate, Corporate Sustainability at Bloomberg New Energy Finance (BloombergNEF), Georgetown should have made sure to hedge their risk in ERCOT’s wholesale market. 

“In the United States, what drives individual power markets can be drastically different,” he explains. “In Texas, you have a massive oil and gas industry, as well as some of the strongest wind and solar resources. When you buy clean energy and use it as a hedge against wholesale market prices, the (more) clean energy you add into the market actually depresses wholesale prices. Renewable energy sources generate at zero marginal cost when the sun shines or the wind blows; by contrast, coal or gas has fuel costs.”

Georgetown was able to negotiate what appeared to be competitive renewable contracts. As Harrison mentioned, during times of excellent wind and solar conditions, market prices are low as there is more than enough power being generated. However, when wind and solar are not performing (and this is the only type of energy that was contracted by Georgetown), they then need to rely on the ERCOT market to purchase the rest of their electricity in real time.

It's not hard to imagine that when the ERCOT market is in need of energy due to inadequate renewable conditions, thermal power plants need to be started and prices may soar. This type of vulnerability to market prices is exactly what Georgetown has been dealing with. When the community has more renewables than its need, it has to be sold and, under such conditions, prices are low. When there are not enough renewables, prices climb, and without any owned or contracted firm thermal capacity, which is used to hedge against the real-time market and risks of market spikes, Georgetown is at the mercy of market forces.

Despite the trouble that Georgetown has faced, the ERCOT market is still one that, by design, should reward and allow utilities to take advantage of cheap renewable energy prices. However, to maintain a reliable, affordable and cleaner power mix or portfolio, renewable energy is just one part of the puzzle. Having flexible gas generating assets available to hedge against the market when renewables are not providing sufficient amounts of energy and prices are high, is extremely important when balancing a high renewable portfolio. To achieve this as affordably and environmentally friendly as possible, flexible gas assets should be used. 

Agile and flexible solution

Wärtsilä technologies are capable of fast starting and reaching full output in under 5 minutes. These technologies are being used across Texas to not only hedge or protect against high price spikes, but also to capture market opportunities available when prices and demand are high. Having a generating asset that is capable of turning on at the start of a five-minute price spike and switching off instantly when the wind starts blowing again and prices start to fall, is critical in a market as competitive as ERCOTS. 

Georgetown’s intention of moving towards a cleaner energy future is a sound one. This is especially true in ERCOT, where renewable conditions are some of the best in the world. Relying solely on the weather to cooperate in order to provide the right quantity of affordable energy to the rate players is simply too risky. A municipal utility’s strategy must be to provide reliable energy with an affordable cost. 

To do this, a hedge is necessary. Flexible gas generation is the best means to prevent scenarios where the utility may lose millions in taxpayers’ money.