By Sheldon Kimber, CEO, Intersect Power
Ever since there were forms of energy to transition between those transitions have shared many similarities. These include entrepreneurship, government support, disruption of existing markets/industries, and overwhelming economic gains for the regions lucky enough to be blessed with these new resources. When large volumes of oil and gas were discovered in Texas at the turn of the 20th century, the now famous gushers like Spindletop touched off one of the largest economic booms in US history and redefined the economic and social fabric of Texas and the nation.
Some of the most successful entrepreneurs in US history emerged from this and similar oil booms of the time. They benefited from billions of dollars of US government support through tax policies such as depletion allowances and the write offs of intangible drilling costs. This support was critical to the development of the new industry, which allowed for more flexible energy sources and materials that would help the United States win two World Wars and position itself for global economic expansion in the post war era. Transportation, manufacturing, heating, lighting and other markets of the time were upended. In the short term, this upheaval impacted both consumers and suppliers. In the end though, few would question that the transition to oil and gas in the United States has been a critical part of our economic success and quality of life for the past 100+ years.
Today the state of Texas finds itself at the vanguard of another major energy transition. This transition too is defined by a boom of entrepreneurial endeavors, government support for a nascent industry, disruption of existing markets and the potential for unbelievable economic advantages.
Texas, while known for its abundant oil and gas resources, is at the forefront of the renewable energy revolution. With world class wind and solar resources, the Lone Star State has become a leading player in the renewable energy and is well on its way to an all of the above energy strategy. Renewable projects in Texas offer landowners and ranchers additional income from their land just as oil and gas leases have for generations. Factories that supply the wind turbines, batteries, steel and other components for these projects are relocating to Texas to meet the industry’s needs. The growth of renewable energy in Texas has already spurred significant economic development and energy industry job creation. The renewable energy sector has become a significant driver of the state’s economy, creating tens of thousands of jobs1 and attracting billions of dollars in investment. Moreover, renewable energy projects provide tax revenue for local communities, supporting public services such as schools and hospitals, particularly in rural areas.
However, the Texas Senate – specifically with SB 624 and other bills approved and being debated by the House for consideration – could hinder the growth of renewable energy in the state, directly impacting its ability to attract capital and keep the state from participating in the next great energy boom… clean hydrogen.
SB 624 would require only renewable energy generation facilities, such as wind and solar farms, to obtain a permit from the Public Utility Commission of Texas (PUC) in order to construct or operate in the state. No other forms of generation would be required to obtain such a permit. The proposed permit rule for renewable energy includes a retroactive requirement for those facilities already operating in the state to obtain the same permit, if they expand or change their footprint.
The imposition of such overregulation, while not a strict violation of private property rights, could easily be deemed a form of public taking by the state government. The policy will greatly diminish the value of millions of Texans’ private land while destroying billions of dollars of investment in hard infrastructure from some of the largest energy companies and financial institutions in the world. It is the antithesis of the business-friendly policy environment that has been at the center of the state’s rapid growth for years.
Obviously, a policy move this extreme will have ramifications. From a financial institution perspective alone, the impact is striking. The ability to attract capital for large infrastructure projects in any locale is rooted in the stability, predictability and trust that investors have in the institutions that govern the region. To date, Texas has been an excellent location to build and finance energy assets of all kinds with over $70 billion of renewable energy investments since 2000. While recent changes have rendered the bill somewhat less toxic to banks and investors, when it was first proposed SB 624 went so far as to retroactively change the law in a way that could force existing renewable generators to shut down thereby stranding billions of dollars worth of assets. Even the suggestion of such a thing evokes investors worst nightmares of similarly unpredictable behavior such as nationalization and other change in law more often seen in developing economies.
It is ironic then that in the same legislative session Texas is also proposing a new capacity payment aimed at incentivizing fossil generators to build more gas fired assets in the state. The build out of the gigawatts of new gas fired generation will require billions of dollars of new private capital from the very institutions that the state is about to undermine on the renewable side through SB 624. At best it will be hard to convince these investors to finance the new fossil build out as the same capital providers observe a dynamic and unstable policy environment in the state.
What’s more Texas risks being left out of the coming boom in green hydrogen. The area just north of the Permian Basin in Northwest Texas is the “Permian Basin of green hydrogen”. The combination of wind and solar resource in the area make it ideal for the generation of green hydrogen from electricity through the process of electrolysis. This allows producers to transform green electrons into green molecules which can be moved, marketed and sold in a manner similar to other liquid and gaseous fuels. This new product will require expertise in the transportation and handling of volatile chemicals, fuels marketing, compression, terminaling, shipping and many other areas where Texas already has a highly trained workforce and true competitive advantage. And Europe, who is already happy to take Texas’ LNG, has a target for 10 million tons of green hydrogen to be imported by 2030. Guess who is best positioned to serve that mandate?
Some in the Texas legislature seem intent upon lawmaking to address their erroneous belief that renewables are the only cause of their grid’s lack of reliability in winter storms and summer heat waves. In the zeal to judge and punish the renewable industry they would shackle this new green hydrogen industry as well by requiring all wind and solar plants producing power for green hydrogen production to also go through this punitive permitting process. This would be an unbelievably shortsighted decision which Oklahoma, Arkansas, and Louisiana would no doubt celebrate as investment flees to their states.
The state of Texas sits at a crossroads where they can easily add to their existing strength across “all of the above” energy categories by simply narrowing the scope of their efforts to address the shortcomings of the Texas grid. New transmission, demand response and yes, even gas fired power plants are needed to ensure the grid can once again operate reliably. These should be the focus of this year’s legislative session. Senate Bill 624 and similarly punitive laws that target specific types of generation have no role to play in this effort and they would harm a great many Texans if they were to become law.
Sources
1 Estimated 80-90,000 direct and indirect jobs created, 15-20,000 of which are permanent jobs created to support ongoing operations, and the average pay for the direct jobs created is expected to be 30% higher than the statewide average. https://poweralliance.org/2023/03/15/report-renewable-energy-to-serve-as-backbone-for-emerging-energy-technologies-in-texas/
2 As of November 2022, estimate of $70-$90 billion in total investments for wind, solar and batteries since 2000 https://poweralliance.org/wp-content/uploads/2023/03/3-15-23-APA-Study-Economic-Impact-of-Renewables-in-Texas.pdf