AESP

AESP leads a vibrant community of professionals dedicated to improving energy efficiency through learning, networking and knowledge sharing.

Post

Vanishing Renewable Energy Premium in Texas's Retail Pricing Plans

Posted to AESP

Vanishing Renewable Energy Premium in Texas's Retail Pricing Plans

By Jay Zarnikau and C.K. Woo

jzarnikau_1004956.jpg

It’s always been assumed that one needs to pay a premium. Traditionally, consumers who are environmentally conscious have paid a premium to enroll in voluntary “green pricing programs. These pricing plans have allowed customers the choice of paying a little more on their electricity bill in exchange for receiving electric energy with higher renewable energy content.


We recently analyzed 710 retail pricing plans offered in December 2018 by Texas’s competitive retailers to residents in Dallas, Houston, Corpus Christi, and Abilene and found something interesting: the renewable energy premium has disappeared, as we report in a recent article in the journal Energy Policy.

ckwoo_1004958.jpg

The Answer is Blowing in the Wind


Since January 2002, most Texans can purchase electricity from their pick of multiple “retail electric providers” (REPs) that offer a variety of pricing plans and services.  REPs often differentiate their plans by renewable energy content, mostly clustering at the 10%, 15%, 50%, or 100% levels.  For example, a recent review of the state’s PowerToChoose website shows that 17 REPs offer 35 different rate plans with 100% renewable energy to consumers in Houston.


Enabled by transmission infrastructure projects, federal tax credits, a favorable business environment, and a vast resource potential, wind energy has become a major share of the State’s generation mix.  At the end of 2018, 28,638 MW of capacity was enrolled in the state’s Renewable Energy Credit Program -- far in excess of State’s 2025 target of 10,000 MW of renewable generation capacity.  In 2018, wind farms provided 18.6% of the energy requirements in Texas’s wholesale electricity market (ERCOT), while solar energy contributed 1.3%.  Thus, we might expect an average renewable energy content of around 20% for electricity sold in ERCOT.


Historically, voluntary retail pricing plans with higher renewable energy content generally had higher per kWh prices – i.e., carried a price premium – relative to electricity pricing plans with less renewable energy content.

 

Our Analysis of Pricing Plans


To examine Texas’s renewable energy premium, we performed a regression analysis of the residential pricing plans available in four cities at the end of 2018. This analysis estimated the effects of various attributes on a plan’s price, for example a plan’s renewable energy content, contract length, and minimum usage requirement.  We also looked at other features that can affect price, like pre-payment, “free kWh” on weekends, time-varying pricing, and price certainty.


In the past, customers have paid more for plans that offered a greater mix of renewable energy sources. But in our analysis we found the following, based on data from late 2018:


1. There is no longer a significant price premium for the plans’ renewable energy content; and
2. A weak price discount was associated with higher renewable energy content for customers with

    monthly consumption of 1,000 kWh.  


The following scatter plot illustrates these conclusions.  The plans are clustered at a few levels of renewable energy content.  There is a wide range of prices associated with these plans, but no relationship between prices and renewable energy content.

 

diagramarticle2_1004872.png

 
Additionally, we found a price premium associated with pre-pay programs and time-of-use plans that contained a “free kWh feature,” such as free weekends or free evenings.  Sometimes, “free” comes at a price!  We found no clear relationship between the reputation of the retailer (as measured by complaints about the retailer reported to the Public Utility Commission of Texas) and the retailer’s level of prices, all other variables held constant.  Due to the presence of fixed charges in retail pricing plans, average prices tend to decline with higher levels of monthly electricity consumption.  Prices tend to be lower in the larger cities of Houston and Dallas, relative to the smaller markets of Abilene and Corpus Christi.  Longer contract terms tended to have higher prices.

 

Have Renewables Reached “Grid Parity” with Fossil Fueled Generation?


Is Texas unique?  Does electricity from renewable energy sources cost about the same as generation from fossil-fueled power plants?


Perhaps Texas is somewhat unique.  It is the leading state in installed wind capacity and has an abundant solar and wind potential for further renewable energy development.  And, its “energy-only” market differentiates it from other wholesale electricity markets in the U.S.


That said, renewable energy has become increasingly cost-competitive relative to natural-gas- and coal-fired generation in many markets throughout the world, implying that the renewable premium in these markets will likely vanish soon, similar to what we have found for Texas.


For AESP members involved in marketing green pricing programs, a vanishing price premium many be one less obstacle to increasing the participation in such programs.  Rate design professionals may wish to re-examine the rates associated with these programs to determine whether premium prices remain justified.


Texas has reached a point where there is no longer a premium associated with renewable energy, and the cost of renewable energy development is expected to continue to decline.

 

Jay is a vice president at Frontier Energy.  A former AESP Board member, Jay also teaches courses in economics and statistics at The University of Texas and has authored or co-authored over 80 articles appearing in academic and trade journals.  C.K. Woo teaches microeconomics and regulation at The Education University of Hong Kong and has authored or co-authored over 150 refereed journal articles.

AESP Contributor's picture

Thank AESP for the Post!

Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.

Discussions

Jim Stack's picture
Jim Stack on Aug 25, 2020 4:06 pm GMT

Excellent post AESP members,  I see a day when Renewable power from a Utiltiy will be less that for conventional power. In FACT if we removed the subsidies for Fossil fuels and Nuclear it would already be low. My home runs 120% on Renewable Solar PV energy. I installed it myself in 2001 before incentives and it still produces like when it was new. It paid off in just a few years. Sure I use the Utiltiy at night after the Sun goes down but I could and will add battery storage with the advanced long life non toxic batteries someday soon. 

   Solar PV and wind also uses no water. As water becomes more valuable that will be a very big factor since I live in the desert area of Phoenix-Chandler AZ. It makes no pollution but since we don't have a carbon tax that doesn't pay in money yet. It only produces energy during the Peak Time Of day and I use excess energy from the GRID Off Peak. I've saved over $55 K so far and it's good for 20 or more years. So the savings for a Utiltiy of their Mega Systems with storage should be saving all customers money in the future.    

Eric Van Orden's picture
Eric Van Orden on Aug 26, 2020 9:46 pm GMT

In a similar vein....As the pricing of voluntary renewable programs evolve, my question is: if it is lower cost than the grid mix, shouldn't the utility invest in it to benefit all customers not just program participants. Of course, the answer isn't that simple when ensuring apples-to-apples comparisons that include the full value/cost of delivering the energy on the grid, not just the generation cost. But, the day is coming to figure that out.

Matt Chester's picture
Matt Chester on Aug 25, 2020 4:20 pm GMT

This is compelling-- interesting to see the tide shifting!

Gary Hilberg's picture
Gary Hilberg on Aug 26, 2020 10:07 pm GMT

The Texas retail electric segment is very dynamic and many/maybe most do not shop for the best rates.  As noted in the report, the Retail Electric Providers are using many marketing techniques (free nights/weekends) that drive up average costs.  For those who can afford/have the space for home solar (I have it) it can reduce costs, but with average retail rates in Texas at about 10-12 cents/KWH - the payback is not short.  Texas has a program where consumers can purchase market based power - 15 minute increments, last week I paid between 3 cents and $2.50 per KWH - that is a market, average for the week was 8 cents!  Micro demand response - my AC went off!

I would not assume that our grid can be all renewable based on this data.  Some recent data points:

1.  California

2.  EIA report on natural gas use for NG reaching almost 50 billion cubic feet in one day!  45% of that day's load while renewables were at 12%.  

Renewables are happening, but there is a very long way to go.  Reasonable programs targeting a reasonable renewable % of electricity, transportation decarbonization and not forgetting heating are required.    

Matt Chester's picture
Matt Chester on Aug 27, 2020 12:40 pm GMT

 I paid between 3 cents and $2.50 per KWH - that is a market, average for the week was 8 cents!  Micro demand response - my AC went off!

This is really eye-catching for how influential demand response strategies can really be. 

 

The Texas retail electric segment is very dynamic and many/maybe most do not shop for the best rates.

Why do you think this is the case? Lack of understanding? General inertia? The potential savings not being great enough, like you mention?

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »