As Texas grows, the demand on the state’s energy resources and infrastructure is intensifying. At the same time, the state is still addressing vulnerabilities in its power grid exposed by Winter Storm Uri in 2021.
This report outlines the challenges in the Texas electric industry, reviews recent legislative actions, and highlights what to watch for moving forward.
Texas Energy at a Glance
ERCOT’s real-time fuel mix shows the blend of energy used in real time, reflecting Texas’ reliance on both dispatchable and intermittent energy. On sunny and windy days, wind and solar energy often reaches over 60% of the real-time fuel mix. When this isn’t happening, ERCOT must rely on thermal sources like liquified natural gas (LNG), coal, and nuclear energy.
Texas Energy Demand Rising
ERCOT’s peak demand will nearly double by 2030. Worst case scenario: demand could outpace supply as soon as 2027. Without proactive infrastructure planning, the state’s ability to reliably power homes and businesses could be in jeopardy. Peak demands once seen as emergencies—like those during Winter Storm Uri or last summer’s record-breaking heat—pale compared to anticipated demand.
Several factors are driving increased demand:
| Population Growth — Texas’ current population of 30.3 million is expected to grow to approximately 32.5 million by 2030 and 36.2 million by 2040, largely due to people moving from other states. |
| Rising Temperatures — As temperatures rise, Texans will lower their thermostats, increasing energy demand by as much as 70% by 2050. By 2036, 100-degree days will be more common, and the average temperature will be about three degrees higher than the past 50 years. |
| Electrification of the Oil and Gas — Electrifying oil and gas operations could nearly quadruple the electricity demand in West Texas in the next ten years, an unprecedented growth rate. Electrification is the transition from traditional fuel sources, such as diesel, to electricity for powering oil and gas operations. It also helps curb carbon emissions. |
| Data Centers and Cryptocurrency Mining — These sectors are projected to increase electricity demand by 60% in 2025, representing 10% of ERCOT’s total load demand (U.S. Energy Information Administration). Data centers power many internet-based operations, such as artificial intelligence (AI), social media, e-commerce, and streaming services. In some instances, cryptocurrency mining operations alone request more power from the grid than entire cities, such as Lubbock (ERCOT, New York Times). Notably, the federal government has recently invested $500 billion in establishing 20 AI data centers in Texas, with ten already under construction (PBS). |
Grid Vulnerabilities Exposed by Winter Storm Uri
The grid failures during Winter Storm Uri resulted in at least 246 deaths and caused economic losses between $80 and $130 billion. These failures largely stemmed from the Legislature’s failure to implement weatherization recommendations by the Public Utilities Commission of Texas (PUC), Federal Energy Regulatory Commission (FERC), and North American Electric Reliability Corporation (NERC) following similar winter weather events in December 1989 and February 2011.
The grid failed for numerous reasons, but a few stand out as major factors:
Generation Failures — Inadequate weatherization of power plants caused widespread failures, especially in natural gas and coal plants.
Many of Texas’ electricity plants were not properly weatherized to handle extreme cold conditions (UT Austin Energy Institute). As a result, generation equipment failed, reducing power generation capacity and necessitating rolling blackouts to prevent a full shutdown of the ERCOT grid. Every type of generation fell short during Uri. However, failures in natural gas and coal plants had a greater impact on the grid than renewables, as these plants were responsible for a larger share of production during the storm.
Natural Gas Supply Disruptions — Weatherization shortcomings in natural gas infrastructure led to decreased supply, subsequently decreasing electricity output.
Natural gas production decreased by nearly 50% during the storm, as wellheads and pipelines froze, disrupting the fuel supply to power plants (UT Austin Energy Institute). The interdependence between natural gas and electricity meant that failures in one system triggered disruptions in the other, worsening the overall crisis.
Grid Management Challenges — Beyond weather-related failures, management issues within ERCOT and PUC further exacerbated the crisis.
For example, a report by the UT Austin Energy Institute revealed that ERCOT could not stop pre-scheduled maintenance outages at natural gas power plants that could have contributed additional energy during the storm. Additionally, certain entities that should have been registered as critical were not, further disrupting the natural gas supply. Lastly, there was a lack of clear ownership and responsibility for grid performance.
Market Structure Does Not Incentivize Resiliency — Texas’ deregulated market led to a focus on low-cost rather than reliable energy.
Although the state’s deregulated market lowers prices and innovation through competition, it also incentivizes cheap electricity over long-term investments in reliability (Houston Advanced Research Center).
Recent Legislatative Actions
87th Legislature:
Weatherization for Generation and Natural Gas Entities
SB 3 (87R) by Schwertner, the 87th Session’s Winter Storm Uri omnibus bill, requires the weatherization of certain gas supply chain and gas pipeline facilities, as well as critically-designated natural gas facilities, with penalties of up to $1 million for violations.
Since SB 3 (87R) became law, the PUC has instituted rules for weatherization inspections of generation entities for summer and winter. Weatherization requirements reflect the diverse climates faced by generation entities throughout the state and include measures such as pipe insulation, status of transformer cooling technology, and presence of wind breaks to block windchill.
HB 3648 (87R), by Rep. Geren, complements SB 3 (87R) by directing the PUC and Railroad Commission (RRC) to designate certain gas facilities as critical to maintaining or restoring electricity service during emergencies. Read LSG’s Floor Report on HB 3648, 87(R) for more details.
Changes to ERCOT and PUC Governing Structures
SB 2 (87R) by Sen. Hancock and SB 2154 (87R) by Sen. Schwertner clarified that the PUC has final approval over ERCOT decisions. However, they also upheld a false choice between industry expertise and Texas residency. Read LSG’s Floor Report on SB 2, 87(R) and SB 2154, 87(R) for more details.
88th Legislature:
Creation of New Ancillary Service (DRRS)
HB 1500 (88R) by Holland created a new ancillary service, the Dispatchable Reliability Reserve Services (DRRS), which offers financial incentives for industrial and commercial energy suppliers who can quickly deploy power reserves when the grid is in crisis. While this is a positive step, DRRS excludes renewable energy from compensation, including Battery Energy Storage Systems (BESS), which could be used as renewable, dispatchable power. Read LSG’s Floor Report on HB 1500, 88(R) for more information.
Texas Energy Fund
SB 2627 (88R) and SJR 93 (88R), by Sen. Schwertner created the Texas Energy Fund (TEF), a taxpayer-funded low-interest loan program to build or upgrade dispatchable power plants, i.e. natural gas or coal plants. The TEF unnecessarily encourages the construction of additional natural gas power plants when capital costs are not a significant barrier to entry. This initiative distorts the market to support an industry that is no longer as profitable as it once was. It also does not guarantee that companies can repay the loan. Additionally, it excludes renewable energy sources, which are essential for a balanced energy mix. Meanwhile, renewable energy is becoming more affordable and accessible, diminishing the market share of fossil fuels. Read LSG’s Floor Report on SB 2627, 88(R) and SJR 93, 88(R) for more details.
The original intention for the Fund was to allocate $10 billion as follows:
- $7.2 billion for dispatchable sources like LNG, coal, and nuclear
- $1.8 billion for “behind-the-meter” microgrids, which could provide multi-day backup power by isolating small sections of the grid during severe storms
- $1 billion for energy providers in Texas that are not part of ERCOT’s grid
However, during the 88th Session, the Legislature only approved $5 billion. The House’s Introduced State Budget, HB 1 (89R) by Rep. Bonnen, includes the remaining $5 billion in General Revenue for the TEF. Despite this, no TEF funds have been distributed so far. Additionally, the fund has faced issues with its contracted firm, Deloitte, which allowed falsified applications to proceed without proper vetting.
Balancing Reliability, Resiliency, Sustainability, and Affordability for Texas’ Energy Future
Energy Efficiency
Energy efficiency initiatives reduce electricity costs and ease grid demand by using less energy. Texas could promote energy-efficient building codes and incentivize utilities to invest in cost-saving programs. Last session, Rep. Anchia’s HB 4811 (88R), which aimed to create a statewide energy efficiency plan, passed the House but stalled in the Senate. This session, Rep. Garvin-Hawkins’s HB 1483 (89R) offers tax exemptions for energy-efficient home improvements.
Don’t Mess with Texas Renewables
Texas should pursue a diverse energy portfolio that balances reliability—ensuring uninterrupted power—and resiliency—enabling quick recovery after events like storms or equipment failures—while also prioritizing environmental sustainability and affordability. All of this involves Texas’ vast potential for renewable energy.
Enacted State legislation has historically sought to penalize or discourage renewable energy. If the state refuses to invest in, incentivize, or acknowledge the importance of renewable energy in our energy portfolio, it should at least avoid adding barriers. Furthermore, an energy future focused on renewables, decarbonization, and electrification is an effective way to significantly reduce greenhouse gas emissions.
Some bills this session specifically target the growing renewable energy industry. For example, Sen. King’s SB 388 mandates that 50% of available energy on the ERCOT grid come from dispatchable generation, primarily fossil fuels. Rep. Patterson’s HB 553 adds barriers to developing wind and solar projects.
Investing in Battery Energy Storage Systems (BESS)
Battery storage, alongside renewable energy sources, can improve the grid’s reliability and resiliency.
Battery storage helps balance the intermittency of renewables, transforming renewable generation into dispatchable energy that ERCOT can use as a backup source in day-to-day and emergency situations. Additionally, the co-location of BESS near wind or solar energy generation allows energy to flow directly from generation to storage without contributing to transmission congestion (NREL).
Since Winter Storm Uri, BESS has supported the grid numerous times during extreme cold and heat demand. In September 2023, when temperatures were record-high, BESS provided enough energy to power 434,000 homes and prevent grid failure (Texas Comptroller). Battery storage capacity has increased 66x in the last four years, there has been a 66x increase in battery storage capacity, with continued growth expected.
Some critics have expressed concern about the fire risks of BESS. This session, SB 1519 and its House companion, HB 1343, impose restrictions on BESS installations, citing fire risk. However, BESS technology has improved significantly in recent years.
Nuclear Energy Costs Remain Untested
Although interest in nuclear energy has increased, concerns about long-term costs and the handling of radioactive waste persist. Small Modular Reactors (SMRs), which are expected to be deployable by the late 2020s or early 2030s, provide benefits such as a smaller footprint and greater flexibility in location compared to traditional nuclear reactors. However, it remains unclear whether they will be economically viable once fully deployed, and long-term radioactive waste disposal still needs to be addressed. Texas A&M has announced land for SMR development, and current legislative efforts like HB 2678 by Rep. Darby and SB 1105 by Sen. Parker aim to establish a Texas Advanced Nuclear Energy Authority.
Curbing Cryptocurrency Mining Energy Usage
Cryptocurrency mining drives high energy demand while providing little benefit to everyday Texans. Additionally, some mining companies exploit ERCOT’s market incentives by purchasing energy at low rates and reselling it at crisis-inflated prices during times of higher demand. This grid manipulation practice makes more profit than mining itself. Riot, a Colorado-based Bitcoin company with mines in Rockdale and Corsicana, made roughly $32 billion in one month using this practice — nearly $22 billion more than from mining.
While SB 1929 by Johnson allows the state to better understand how much cryptocurrency mining is happening in Texas, further legislation is still needed to address harms associated with cryptocurrency mining. SB 1751 by Kolkhorst from the 88th Session aimed to regulate cryptocurrency’s strain on the grid, passed the Senate but stalled in the House has not been refiled for the 89th Session.
Regulating Abandoned Power Lines
Abandoned power lines by oil and gas companies waste electricity and increase fire risk. While many electric companies follow strict guidelines when laying power lines and building transmission infrastructure, there is less oversight over the electric utilities that oil and gas companies acquire to power their worksites. When these worksites close, the abandoned power lines uselessly siphon energy from the grid, especially in rural areas where oil and gas production consumes a larger share of available energy. Furthermore, these lines often go unmaintained or uninspected, leading to sparking that has caused wildfires throughout the panhandle and West Texas. The RRC and PUC must take greater accountability to address this issue.
Relieving Transmission Congestion
As energy demand and supply grow, transmission infrastructure improvements are equally necessary. Existing transmission is insufficient to deliver energy to homes in times of high demand, and Texas’ rising load growth will only exacerbate this congestion. ERCOT has identified several transmission chokepoints, most in the Permian Basin and the state’s most densely populated regions. Notably, Texas is home to four of the most populous metro areas in the nation, where over two-thirds of Texans reside.
ERCOT’s 2024 Regional Transmission Plan calls for over a thousand miles of new transmission lines in the state, costing an estimated $31 to $33 billion. The PUC will decide the plan’s specifics by May 2025. Bottom line: State investments in the electricity sector should involve transmission.
Texas can Rise to the Energy Demand Challenge
This session, the LSG will continue to support initiatives that offer the best paths for reliability, resiliency, environmental sustainability, and affordability.
Writing credits: Joa Brown, Will Henderson, Samantha Ruelas