We are deeply concerned by electricity market design legislation that will negatively impact renewable energy investments in Texas. Texas Senate Bill 1278, House Bill 4466, and similar language that was inserted by Senate floor amendment into Senate Bill 3 pose a tremendous threat to the continued operation of renewable energy projects in Texas. Sadly, these bills have nothing to do with the February 2021 extreme weather event and will not prevent a future event from happening again. They are unnecessary attacks on renewable energy. 

Disturbingly, these bills impose new and significant costs on existing projects, project investors,  and electricity customers. These bills will devalue existing projects and will harm local communities, schools, and Texas landowners who rely on multi-generational income from wind and solar projects. In addition, these bills will harm future projects, making it more difficult and expensive to power the Texas economy with a product Fortune 500 America is demanding. 

As you know, the electric grid requires ancillary services to maintain stability and reliability. In our market, generators supply power to ERCOT and it is delivered to customers (load). ERCOT procures the ancillary services needed to maintain the frequency, stability, and reliability of the grid. The aggregate cost of those services is shared across all load. This has been the market approach for over 20 years. 

All generators create some need for ancillary services. Variations in load also create the need for ancillary services. Because of their rapidly varying power usage, some large industrial customers stand out for their ancillary services needs. Additionally, ancillary services are procured as a precautionary measure to be available if a large power supplier, like a nuclear power plant, trips off-line. In other words, all resources and load require the deployment of ancillary services. 

There is a misconception that the variability of renewable energy creates a substantial ancillary services requirement. While renewables like wind and solar are variable, they are predictable in the near term and ERCOT can forecast and control wind and solar output. Notably, ancillary services purchases in ERCOT have remained relatively flat, while renewable generation in ERCOT has increased 262% over the last decade.

The fact is that our existing ancillary services products in ERCOT efficiently and cost-effectively address variability in supply and demand. The ERCOT Independent Market Monitor has found that improvements underway at ERCOT to improve ancillary services will further improve system reliability while delivering substantial reductions in production costs, congestion costs, and energy costs.

While there have been past efforts to assign ancillary services costs to specific market participants, stakeholders have consistently returned to a system that recognizes that these services benefit the entire market and are best shared by all customers. In Texas, this system has been in place for decades. This long-established structure has enabled more than $60 billion of renewable energy investment into the Texas market. At the same time, this has allowed corporate customers to enter into long-term power purchase agreements with pricing based on these long-established market rules.

These proposals, with virtually no debate and input from market experts at ERCOT and the Independent Market Monitor, upend established market principles and will harm these parties. In fact, these bills would require wind and solar generators to essentially take over the role of ERCOT to match their net generation output to
the variability of energy consumption at all times.

These proposals are inherently discriminatory as they apply to only one form of generation and even proponents are unable to fully calculate their financial impacts on generators or the consumers who rely on these power purchase agreements.

Proponents of these changes claim that these changes will help bring more "dispatchable" generation to the ERCOT market and add to the Texas grid's reliability. This claim is false for several reasons:

• Imposing additional costs on renewable generation does nothing to address failures related to the winter storm. ERCOT did not lack enough thermal generation capacity during the winter storms. It lacked enough operating thermal generation. The "dispatchable," "reliable" power generators Texas relied on were neither dispatchable nor reliable when called upon in February. These failures have many causes including fuel availability issues, none of which are addressed by imposing additional costs on renewable generation.
• These proposals undermine a stable market environment for investment by imposing new and significant costs on existing generation assets. Investors in power generation of any kind will be hesitant to invest in a Texas market where discriminatory and unneeded changes in market rules place $60 billion of capital investment at risk. The financial stability and integrity of the ERCOT market have already been severely tested in    2021. Legislative action to target one group of generators, investors, and customers will be counterproductive and further harm the state's business reputation. In fact, investors and power buyers are backing away from projects needed to meet future power demand as you read this
  letter.

These changes will not benefit Texas consumers, they will not increase reliability, and they will not address any systemic shortcomings identified in our recent crisis. These proposals have been pursued for years to give commercial advantage to one set of generators. They harm existing projects and investors, and they impact the large number of commercial and industrial customers who have purchased the power from these projects.

Because of your commitment to Texas’ business reputation and to a competitive electricity market that is fair to all participants, we urge you to reject HB 4466, SB 1278, and the changes found in SB 3.