Fossil Fuels Face a $1.4 Billion Solar Problem in Texas

A boom in solar power is threatening to wipe out $1.4 billion a year of summertime revenue for fossil-fuel generators in Texas.

Almost 15 gigawatts of solar power may crop up in the Lone Star state in the coming years, and every gigawatt stands to shave about $2.76 a megawatt-hour from wholesale electricity prices there when demand peaks in the summer, an analysis by Bloomberg New Energy Finance show. This could end up dealing a major blow to fossil fuel-burning generators that rely on those peak prices to weather the lulls in demand through the rest of the year.

The Texas market is “especially vulnerable to the impact of solar penetration because the region relies so heavily on a handful of high-priced hours each year -- and because those hours tend to align with solar production,” BNEF analyst Joshua Danial said in the report.

The looming threat to natural gas- and coal-fired plants in Texas mirrors the shifts that renewable energy has brought on in other markets. During some hours, wholesale electricity prices in California dip into negative territory as solar power peaks, flooding the state’s grid with excess supplies. Such weakening economics for power plants have sparked debates at both state and federal levels over whether coal and nuclear resources need subsidies to keep running.

To be sure, the solar surge in Texas won’t happen overnight. BNEF projects 1.8 gigawatts of new solar capacity by 2020.

And demand spikes don’t only occur in the summer months. On Wednesday morning, Texans were blasting their heaters to keep warm during an arctic freeze, raising power use to the highest level ever for the season. Prices briefly jumped to more than $2,200 a megawatt-hour as temperatures plunged. At least five coal and natural gas plants increased output to capture higher prices, according to Genscape.

As the cost of installing solar panels continues to fall, the economics of operating any type of power plant in the state declines.

“Solar has a more perverse impact on power prices in later years,” Danial said in the report. Five gigawatts of solar “is enough to squash ERCOT’s peaky average price profile,” he said.