• Solar, Biomass, and Geothermal Development Opportunities Emerging in Texas
  • July 15, 2011
  • Law Firm: Jones Day - Cleveland Office
  • Renewable energy development in Texas has been dominated by wind energy, but new opportunities are opening up for solar, biomass, and geothermal developers. New regulations proposed by the Public Utilities Commission of Texas would create a space for these sorts of projects and diversify Texas's renewable energy portfolio.

    Texas established its Renewable Portfolio Standard, or "RPS," program in 1999, with implementation commencing January 2002. Utilities in the state are required to obtain and retire Renewable Energy Credits, or "RECs," to meet their market-share based requirements established under the RPS. One REC is created for each megawatt-hour ("MWh") of electricity produced from an eligible renewable facility. The RECs are tradable and may be bought or sold separately from the underlying electricity from which they were generated. Texas was the first state to adopt such a system.

    Texas's RPS program was widely successful, so much so that new renewable energy capacity has consistently exceeded Texas's goals. The Texas Legislature originally set a goal of 2,000 MW of additional renewable generation capacity to be built by 2009. That goal was met by 2005, so in 2005, the Legislature increased the RPS target to 5,880 MW by 2015 and 10,000 MW by 2025. However, by the end of 2009, Texas had 9,410 MW of operating wind generation. As the REC market became flooded with wind-based RECs, the price of RECs collapsed due to a glut of supply, which in turn curtailed use of the existing REC market to promote non-wind generation.

    Due to the large amount of new wind capacity added in a short amount of time, the Texas REC market buckled as supply outstripped demand. The oversupply of RECs, with the resulting collapse in prices, undermined the ability of the REC market to spur new renewable energy generation, as renewable energy generators could not expect the RECs to be produced by new and existing projects to provide much cash flow. As a result, almost all of the new renewable energy generation capacity developed in Texas has been wind-based, driven by a federal production tax credit and the prolific wind resources of West Texas.

    The domination of wind in Texas's renewable energy expansion has concerned some who felt the state had not done enough to promote other renewable resources, such as solar and biomass. In a nod toward this concern, the Texas Legislature incorporated in the state's RPS a nonbinding goal of adding 500 MW of non-wind capacity by 2015.

    To encourage diversification of its renewable energy portfolio resources and meet the 500 MW goal, the Public Utilities Commission of Texas proposed in January 2011 to segment the REC market into three tiers. Tier 1 would be reserved for new solar generation, and Tier 2 would be reserved for new biomass and geothermal generation. Tier 3 would encompass all renewable energy that is neither solar, biomass, nor geothermal (such as wind). Under the proposal, utilities would be required to acquire RECs from all three tiers, thus creating demand for solar, biomass, and geothermal generation by preventing utilities from relying solely on wind power to meet their RPS obligations. The Commission is currently undecided on how to allocate the 500 MW target among solar and other non-wind renewable energy resources, leaving the major winners of this RPS shake-up to be determined.

    The Texas Legislature's goal of diversifying the state's renewable energy portfolio may soon become a reality with the implementation of this proposal. If that occurs, a viable market for solar, biomass, and geothermal energy will be carved out of the wind-dominated Texas landscape, and developers of these resources should take notice.