Texas Senate approves credit program for dispatchable generation

Technically speaking, the program is not entirely new—it repurposes an existing program that was never implemented. S.B. 388 is an amendment to Section 39.9044 of Texas’ Utilities Code, which was adopted as part of Texas’ restructuring of the electricity markets to encourage competition. Section 39.9044 created a natural gas energy credit trading program with the goal of encouraging 50% of megawatt generating capacity installed after 2000 to use natural gas. The goal was to incent the construction of competitive and efficient gas-fired generation over the nuclear and coal fired generation that dominated the industry at the time. However, the natural gas credit program never went into effect.

S.B. 388 amends Section 39.9044 to ensure that 50% of the megawatts of generation capacity installed in the Energy Reliability Council of Texas (“ERCOT”) region after January 1, 2026, be sourced from “dispatchable” generation other than battery energy storage. Specifically, S.B. 388 requires the Public Utilities Commission of Texas (“PUCT”) to activate a dispatchable generation credit trading program by January 1, 2027, if the Commission determines that dispatchable generation may provide less than 55% of all new generating capacity installed in the ERCOT power region after January 1, 2026. This would effectively require utilities, generation companies, and electric cooperatives in ERCOT to offset new renewables and battery capacity with an equal amount of new dispatchable capacity beginning as early as next year. If they cannot, they will have to buy dispatchable power credits to cover any deficit in dispatchable generation capacity under their ownership or control.

A separate section of the Texas Utilities Code defines “non-dispatchable” generation facilities as those whose output is “controlled primarily by forces outside of human control.” Thus, while the previous credit trading program was solely focused on natural gas, it would now be broadened to include other resources, such as nuclear power.¹ Other potential beneficiaries might include certain renewables, such as biomass and geothermal. S.B. 388’s definition of dispatchable explicitly excludes batteries; however, power generation companies that exclusively operate battery energy storage systems are exempted from the dispatchable power generation requirements. It is not clear how other forms of energy storage, such as compressed air, would be treated by the program.

Of the projects currently in the queue to connect to the Texas grid through 2031, 7% are natural gas plants, 42% are battery storage, and 40% are solar generation. Supply chain issues have been hindering the industry’s ability to build new gas plants, as the process to acquire a gas turbine and build the plant could take up to 5 years. Similarly, new nuclear projects are not expected to come online until after 2030.² Thus, many are concerned the credit program, if activated, would dramatically reduce Texas’ ability to add new power generation, reducing capacity additions from 35% over the last four years to 10% over the next four years.

Authored by George (Chip) Cannon, Porter Wiseman, and Valerie Marshall.