Wednesday8 April 2020 ★ FINANCIAL TIMES 15

FT BIG READ. ENERGY

The Lone Star state — a hub of the US oil and gas industry — will build a quarter of all new industrial-scale

solar capacity installed in the country this year. But can a surge in renewables survive low crude prices?

ByGregoryMeyer

president,” says John Berger, chief

executive of Sunnova, a Houston-based

solar company.

Oil companies have begun to embrace

solar despite the threat it represents to

their gas sales.ExxonMobil ims toa

meet 70 per cent of its Texas power

demand with renewables through 12-

year purchase agreements withOrsted

of Denmark, including 250MW sup-

plied by solar coming online next year.

Occidental Petroleum, the largest oil

producer in the Permian Basin, struck a

deal with Macquarie to provide 109MW

of solar power over 12 years. It also built

its own smaller solar farm whose energy

will pump carbon dioxide underground

to squeeze out oil.

“We put the solar in to lower our car-

bon footprint but also to provide lower-

cost electrical power,” says Vicki Hollub,

Occidental’s chief executive.

The wider oil industry’s energy-inten-

sive processes have given an indirect

boost to new solar plants by driving

power demand in far west Texas up by

an average of 11 per cent a year between

2013 and 2019, the fastest rate in the

state, according to an Ercot study.

The same study recommended send-

ing more long-distance transmission

lines into the region, but identified one

problem: “Oil and gas customers are not

able to accurately project their demand

needs more than one or two years ahead

of time, while transmission improve-

ments can take up to six years to com-

plete,” itsays.

Competition from cheap oil

This mismatch is glaringly evidentafter

the collapse ofthe west Texas crude

market. Oil companies have shredded

capital spending plans unveiled only

weeks ago. The turmoil also raises the

question of whether solar investment

will survive an era of cheap oil.

Georgios Papadimitriou leads Enel

Green Power North America, a division

of the Italian utility that last year

opened the first half of its 500MW

Roadrunner solar project outside the

Texas oil city of Midland.

Hewould prefer to see electricity

demandrise, he says, but itis not cru-

cial. “For us the key is that we are

cheaper. So even if the pie stays the

same, we can always claim a bigger

piece.We’re more competitive.”

Colin Smith, senior solar analyst at

consultancy Wood Mackenzie, says cer-

tain projects will struggle if electricity

useslows in the state. “But overall, the

economics for solar in Texas are very

strong,” he adds.

Brooks Landgraf,a conservative state

legislator from Odessa in west Texas and

an advocate for theoil and gas sector,

attended Oberon’s groundbreakinglast

June. He predicts that as struggling oil

companies cut loose workers,“there are

going to be a lot more labour opportuni-

ties” in solar projects.

“Thankfully, I come from a part of

Texas where we have the ability to pro-

duce hydrocarbon-based energy and

solar energy and wind energy,” Mr

Landgraf says. “It’sin our culture in the

Permian Basin to produce energy.”

How Texas learned to love solar power

A

olar farm the size ofs a

small citywill open in the

Texas shale heartland this

month, adding more com-

petitionto a US oil and gas

industry that is already flat on its back.

The blue rows of panels at the Oberon

photovoltaic project will generate 150

megawatts of power when they plug into

the grid south of Notrees, an appropri-

ately named townin the Permian Basin.

Oberon’s developers wantto eventually

expand he project to 1,380MW —t

enoughto serve 230,000 homes.

A b oom in solar projectsis under way

across Texas, the US oil and gas capital.

The state will build a quarter of the

record new utility-scale solar capacity

being installedacross the US this year,

according to the Energy Information

Administration, part of the energy

department.

Much of that solar investment is

taking place in the Permian Basin, the

centre of a US shale oil industry that is

now reeling from the impact of the

coronavirus crisis and the price

warbetween Saudi Arabia and Russia.

The solar projects are a threat to fossil

fuels. Renewables have helped to force

the closures of coal-fired power plants.

They are now challenging the primacy

of natural gas in the US electricity

generation mix as the price of solar

equipment keeps on falling. The Repub-

lican legislature has declined to rein in

rapid increases in wind and solar

despite its historic friendliness to the oil

and gas industry.

Yet clean energy has a more compli-

cated relationship with fossil fuels in

Texas, a state of 29m people proud of its

independent streak.Shale oil fracking

has been a big driver of electricity

demand, helping to spur investment in

renewables.

The relationship is visible among

Oberon’s solar arrays. Cut out of the

rows are empty dirt rectangles the size

of parking lots. The developer, 174

Power Global — a division of South

Korea’sHanwha Group —left the spaces

to enable oil drilling rigs to set up and

bore wells underground, says Jason

Garewal,head of business development.

“West Texas is oil and gas territory, it’s

not solar territory today,” he says. “And

so we were pretty proud of our ability to

add to the energy mix without taking

away any future oil and gas extraction.”

Solar’s gains could be hinderedby the

fall in oil prices s West Texas Interme-a

diate crude trades below $30 a barrel —

less than half itsprice in January. The

damage from coronavirus could also hit

electricity consumption, sideline

construction workersor disrupt the

flow of financing, clouding growth for

solar generation.

“Maybe it’s because they carry guns —

they are very polite.”

The grid operated by the non-profit

body Ercot is largely disconnected from

the interstate transmission networks to

the east and west of Texas, exempting it

from federal oversight.

Itsmarket rules are distinctive. Gen-

erators are only paid for the energy that

they sell, not for having capacity at the

ready. Wholesale prices that average

about $40 per megawatt-hour are

allowed to climb as high as $9,000 per

MWh when demand surges on the hot-

test afternoons, a potential windfall for

generators. Solar farms’ output crests

when the sun is highest, enabling them

to participate in these sales.

“The Ercot power market is designed

to be the ultimate competitive market,”

Mr Archer says.

The cost of solar has plummeted, with

the average utility-scale PV project just

$0.80 per installed watt last year com-

pared to $3.53/W in 2010, according to a

BloombergNEF and Business Council

forSustainable Energy survey.Federal

tax credits for solar are also scheduled

to be reduced in the next few years,

sparking a rush to start constructionto

reap maximum benefits, says Cormac

Gilligan of IHS Markit, a consultancy.

Big corporate brands have seized on

falling costs to sign long-term solar

power purchase agreements that also

improve their environmental image. Of

the record 13,600MW of clean energy

deals that companies completed in the

US last year, 5,500MW was in Texas and

the majority of that was solar, according

to the BloombergNEF/BCSE survey.

Google, McDonald’sandWells Fargo

are among those committing to buy

power from Texas solar plants to run a

new data centre, fast-food outlets and

bank branches.

Neha Palmer, Google’s director of

operations and head of energy strategy,

says its$600m datacentre near Dallas

will run in part on power contracted

from threeTexas solar projects.

“[Texas] is a large, deregulated mar-

ket. Users of electricity have a choice in

who they buy electricity from and the

type of energy that they buy,” Ms

Palmer says. “I think that’s been

another driver of the large uptake of

renewables in the state.”

‘Trump is the solar president’

That is bad news for the oil and gas

industry. The EIA projects that renewa-

bles will catch up to gas as a source of

electricity nationwide in 10 years,

capping its market share after years of

gains fuelled by the shale drilling boom.

The penetration of solar and wind has

drawn fire from the likes of the Texas

Public Policy Foundation, an Austin-

based think-tank funded in part by

Charles Koch, the conservative billion-

aire whose donations with his late

brother David helped shift US politics

rightward.

Bill Peacock, the foundation’s vice-

president of research, argues that solar

and wind get an unfair break on local

property taxes. They also do not pay the

cost of new transmission lines to deliver

renewable electricity, which is instead

shifted to ratepayers, he says.

“The only possible reason whatsoever

that renewable sources make sense is if

what a lot of people are saying about

climate change is true,” Mr Peacock

says. “I would debate what a lot of peo-

ple are saying about climate change.”

About 97 per cent of climate scientists

have concluded that human-caused

climate change is happening, says the

American Association for the Advance-

ment of Science, a position also

accepted by most big US oil and gas

companies.

Last year Kelly Hancock, a conserva-

tive Republican from Fort Worth, spon-

sored a bill in the state senate toforce

the Texas utilities regulator to study

ways to strip out the benefit of federal

tax credits for renewable energy groups

in the Ercot marketplace. The legisla-

tion passed in the senate but failed to

clear the Texas house.

Yet the arguments around renewables

are not so neatly split on partisan lines.

When the clean energy advocacy group

Conservative Texans for Energy Innova-

tion formed last year, it commissioned a

poll that showed Texas Republican and

independent voters broadly backed pol-

icies to help solar and wind.

“Historically, some of those key

voices in support of the development of

renewables have been more from the

left side of the political spectrum,” says

Michael Jewell, a CTEI board member.

“We feel like it’s really important for the

conservative side to be involvedas well.”

In Washington, the Trump adminis-

tration’s positions on renewables have

ranged from lukewarm to hostile. The

Federal Energy Regulatory Commission

in December issued a rule that undercut

the competitiveness of state-subsidised

green powerin PJM Interconnection,

the biggest grid in the US, stretching

from Virginia to Illinois.

President Donald Trump has claimed

that wind turbines “kill all the birds”,

describedsolar electricity’s potential sa

“not powerful enough” and adopted

policies meant to prop up theailing coal

industry. Yet, market forces have

delivered a different verdict.

“Trump will be the president that

retires the most coal plants and installs

the most solar systems, and clearly that

was not what he was after. He’s the solar

Houston

Dallas

Permian

Basin

Phoebe

Oberon

Roadrunner

Midland

Notrees

Odessa

Annual average

daily total solar resource

    

kilowatt hour/m/day

*Annual solar global horizontal irradiance using

- data **Measured in gigawatt hours

Sources: National Renewable Energy Laboratory;

Energy Information Administration; Ercot

Texas – the next

sunshine state

The rise of solar in Texas ...

Change in electricity generation

between  and **,

by fuel type ()

-  

Solar

Wind

Gas

Tota l

Nuclear

Hydro

Coal

Other

Biomass

... but solar still only counts

for  of the state’s power

generation

Share of total,  ()

    

Gas

Coal

Wind

Nuclear

Solar

Other

Texan electricity consumption

outstrips the national picture

Electricity sales growth (rebased)















     

US

Texa s

However, these issues might delay but

will not stop the spread of solar in Texas,

experts say. Clean energy investors with

time horizons of more than a decade

like the stable returns of projects

backed by long-term contracts.

Edward Hirs, energy fellow at the

University of Houston, says: “The key

thing is they have a magnificent cost

advantage over gas-fired power plants.

The marginal cost of solar is zero.”

Texas already ranks first in the US in

wind power capacity. It is now on its way

to having the second-most solar PV

capacity in the country after California.

But unlike California, with a goal of

100 per cent clean energy by 2045, the

Lone Star state is adding sun power

through the incentives of a competitive

electricity market.

Operated by the Electric Reliability

Council of Texas (Ercot), more than half

the proposed project capacity queueing

for a grid connection in that market is

industrial-scale solar, records show.

Voracious demand

“Everything’s bigger in Texas,” the say-

ing goes. For solar developers it is an

unmatched opportunity. The state con-

sumes the most electricity in the US.

Power demand has grown 5 per cent

over the past five years even as it fell

nationwide, according to the EIA.

The sunlight is intense, particularly in

the cloudless skies of the Permian Basin

in the state’s far west. Peak solar power

output coincides with voracious air-

conditioning demand on Texas’s blister-

ing summer afternoons.

Moving renewable electricity from

the vastness of the west to eastern cities

such as Dallas and Houston was aided

by special transmission lines the state

authorised 15 years ago. Designed to

handle wind power, they are now easing

the flow of solar too.

A light-touch regulatory approach,

popular with oil and gas executives, has

also attracted the solar industry.

“It’s Texas: there’s very little in the

way of planning laws or restrictions. It’s

pretty streamlined from the point of

view of permitting and getting connec-

tions. So you can develop an asset pretty

quickly,” says Chris Archer, head of

Americas at Macquarie’s Green Invest-

ment Group, a solar and wind developer

with projects in Texas.

Green energy builders have encoun-

tered pushback in states where the

urgency ofclimate changeis widely

embraced. New York governorAndrew

Cuomo— now in the international spot-

light as he addresses the country’s larg-

est coronavirus outbreak — aims to get

70 per cent of the state’s electricity from

renewables by 2030, but upstate towns

have fought to keep solar panels out of

farmland, while beachfront denizens of

Long Island have opposed an offshore

wind project.

No such hurdles confronted Innergex

Renewable Energy’s $400m, 250MW

Phoebe project in Winkler county,

Texas, says Michel Letellier, chief execu-

tive. The desert soil was easy to lease

and to drive piles into. “Texas is a nice

place for business,” Mr Letellier adds.

The Roadrunner solar

projectnear the Texas

oil city of Midland.

The 500MWschemeis

being developed by a

subsidiary of Italian

utility Enel —David Siegel

‘[Texas] is a large,

deregulated market.

Users of electricity have

a choice over... the type

of energy they buy’

‘They have a magnificent

cost advantage over

gas-fired power plants.

The marginal cost of

solar is zero’

APRIL 8 2020 Section:Features Time: 7/4/2020- 18:33 User:alistair.hayes Page Name:BIGPAGE, Part,Page,Edition:EUR, 15, 1