The Texas Legislature is now in the final days of considering a spate of bills that could change how the state’s electricity market functions. In this episode, Doug Lewin, who has been tracking energy-related legislation at the Texas Capitol for more than 20 years, explains the surge in distributed generation, the huge amounts of solar and storage coming onto the ERCOT grid, the prospects for a Texas capacity market, and why his first priority would be to “weatherize, weatherize, weatherize” the state’s gas plants, homes, and businesses. (Recorded May 5, 2023.)
Robert Bryce 0:04
Hi, everyone. Welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And I’m pleased to welcome Doug Lewin. He is the president of stoic energy. It is an Austin based consulting firm. Doug, welcome to the power hungry podcast.
Doug Lewin 0:20
Thanks so much for having me, Robert, good to be with you.
Robert Bryce 0:22
Now, I warned you. I don’t want some guests. But guests introduce themselves on this podcast. So imagine you’ve arrived somewhere you don’t know anyone and you have 60 seconds or so to introduce yourself. Please tell us who you are.
Doug Lewin 0:34
So I’m Doug Lewin. Then working on energy issues in Texas for just about 20 years, I was a staffer at the legislature a long time ago have worked a long part of my career on energy efficiency. These days do a bunch of different things. But I think the things most relevant to this are writing the Texas energy and power newsletter on substack hosting the Texas power podcast with renewable energy world. Yeah, well, well, we’ll leave it there. I’ll tell you, Robert, I, you know, couple years ago, people would kind of yawn when I talked about what I did. But after Febrxuary 2021, everybody got much more interested in became much more popular dinner parties and bars and that sort
Robert Bryce 1:16
of thing. Imagine that. Yeah. No, and there’s a lot going on. And that’s what we want to talk about. And by the way, you will mention it here, Doug Liu and.substack.com. You’re on substack CMI, and trying to drive traffic to our various sub stats. Let me just set the stage here because I just looked these numbers up. And for people who don’t understand or don’t, don’t live in Texas, or get an idea of what how big the Texas electricity business is. Now, I’ll preface this by saying I’m from Oklahoma, I’m not here to brag about Texas. But the Texas electric market is the biggest in the US total electric sales in the United States in 2022, or $488 billion. The 440 200 terawatt hours, Texas accounted for 46 billion in electric sales, and 450 terawatt hours. So Texas alone accounts for about 10% of the entire US electricity market, which is obviously a very big market. But that’s one reason why the stakes are so high in all the legislation that’s now pending at the Capitol, and it’s coming to a close. And Doug, you’ve been writing a lot about it. And I’m following your work for, you know, weeks on this and been meaning to get in touch. So what’s the status, there are a lot of bills that are pending now. And you’ve been following a lot of them. But a lot of the activity is around the performance credit mechanism and all the various things around that. And I’ve been looking at this for months, I still don’t understand it. Tell us give us the quickest rundown you can about all the legislation that’s pending, and what it will mean for consumers.
Doug Lewin 2:45
You know, it’s interesting, there was a hearing just Wednesday night and Chairman hunter of House State Affairs asked one of the witnesses, you know, tell me this thing you’re talking about it was either performance credit mechanism or something like that, you know, in 15 seconds, explain it so somebody can really understand it, I felt so bad for the guy like there is no way to explain that. In 15 seconds, this stuff is all very complicated. If I get too much into jargon, Robert, stop me and no, no problem asked me to explain the terms but, but basically what the performance credit mechanism is, and I’ll explain these terms, so So there are two sort of, there’s a lot of different forms of electricity markets you can have. But if you sort of start at the root, and then sort of branch out from there, sort of the first branch, you get to the first sort of fork in the road, or you go two different ways. One kind is called an energy only market and one is kind of called a capacity market. Texas has ever since 1999, and the restructuring that happened then had an energy only market and Texas policymakers have fiercely protected that for reasons we can talk about but mostly comes down to competition and sort of an economic theory kind of, you know, a little bit of a hierarchy and kind of right, like, you know, markets are better at determining where resources should go and things like that. And so whereas in a capacity market, you have much more of an administrative function where administrators are deciding, drawing demand curves and making big decisions about how much should be procured, and it’s much more of sort of a statist or bureau bureaucratic kind of an approach. And effectively what the PUC and ERCOT are trying to do with the performance credit mechanism is leave the energy only market and establish a capacity market now. They’ve been careful to say no, no, we’re going to preserve the energy only market until ceraweek and Houston about two months ago when the ERCOT CEO, the new ERCOT CEO, Pablo Vegas said the quiet part out loud and said, We need a capacity market. So there’s three legs of the stool, we’ve only got two of them the third one’s capacity, we need that. And so effectively what they’re trying to do is pay A for capacity that will be idle a lot, but be paid even when it’s not operating.
Robert Bryce 5:07
Well, that’s a good primer. And I think pretty succinct. So the basic bifurcation is between regulated and deregulated right to kind of make. It’s not exactly that way. We call it restructured. Ken Lay call it restructured. But in the states in the Southeast Georgia, etc. Those are regulated markets. Texas, California, a few others have gone more toward this restructured or deregulated markets. Is that fair?
Doug Lewin 5:30
It is I would, I would amend that slightly and say that there’s that’s another sort of branch in the tree. And they’re they’re related, because you can have restructured competitive markets that are capacity markets. So if you look at like the PJM market, and they’re there, and then there’s the sort of regulated versus deregulated or, you know, most folks in the industry like say restructure because there’s still some regulation, and there are the differences. Are you vertically integrated? Are you a utility that has all the functions generation retail transmission distribution under one roof? Or have you split those into different components? So there’s, there’s kind of two different or I guess, four different branches, right, two different splits going into two different branches each? Sorry? I know that’s confusing. No, no,
Robert Bryce 6:17
well, it is all confusing. And that’s one of the things that’s electricity business wide. So the lobbyists Full Employment Act, right. You know, this whole different, different parts of the business. It’s an incredibly large business, as I said, nearly $500 billion a year in revenue. So the stakes are enormous. But traditionally, the utility business the electric sector has been vertically integrated, right? From the times of Edison and insole, the one company would own the generator, they own the wires, and they own the meter, right. But so now we’ve gone to this other other model. But why so this other model where you have different players, and you have things like greedy that don’t own any generation, they don’t own any wires own anything that any meters, and yet they were considered to be in the electricity business, which, that’s a longer part of the story, which we know in Texas. And then I live in Austin, you live in Austin, where we have were captive to the city of Austin’s utility. So we’re we live in a state that is restructured, but we live in a segment of the state where we don’t have a choice. So again, it’s all complicated. But the PCM the performance credit mechanism, as I look at what’s going on in the legislature and reading your stuff, Doug luhan.substack.com. That this is where a lot of the activity has been around trying to provide incentives in the Texas marketplace to have dispatchable generation is that one was that the simplest way to define what the objective is?
Doug Lewin 7:35
I think that’s there. I think that that’s fair to say that’s what their objective is what their stated objective is, I think a lot of the folks that have really been pushing the hardest for the performance credit mechanism are the generators, they tend to be the only ones that are that are supporting it at this point, particularly incumbent generators. And I think that their objective, not necessarily the stated one is to drive more revenue to their existing generation, they will say that they want new generation in the market, but that doesn’t have you ever heard of any incumbent industry that goes to a legislative body and lobbies hard and spends a lot of money in order to bring new competitors into their arena. They’re mostly using the performance credit mechanism to try to get more revenue for their existing generation.
Robert Bryce 8:28
So and to be specific here because we separated the wires companies from the generators, so we’re talking about the generators. Now the big ones would be NRG and Vista, right in Texas. Am I remembering correctly Calpine in there too? Yes. So NRG, VISTA and Calpine. And I’ve been getting emails, I’ve been getting seeing ads that are talking about, you know, saying, oh, support this. And so I mean, let me ask the question directly. So the Texas electric markets 46 $45 billion a year, how much is at stake? I mean, you’ve written about this about how much money could be going to different generators or different if this PCM is quayside capacity market, I’ll call it that is put into place, how much money is at stake here? And is any of this good for consumers?
Doug Lewin 9:14
It’s none of this is good for consumers. Not that not the performance credit mechanism is certainly not good for consumers. So the number I typically I think that 45 billion probably takes in all of the money spent on poles and wires. So that’s everything. I think the in the in the ERCOT market, the wholesale power generation market, the number you usually hear is 25 billion or so. The consultant that the PUC hired to originally to do a study on the load serving entity obligation which also would have been very expensive and wouldn’t have actually solved our problems and then they abandoned for the performance credit mechanism. That consultant said though they recommended the load they their own consultant did not recommend the performance credit mechanism. They recommended the other one the load serving entity obligation, but they said that the PCM would cost $5.7 billion per year, gross, and net would cost $460 million. So that’s 5.7 billion. The reason why that number is so large, because you’re paying for that capacity to be there. That’s the capacity market function. Those are all those capacity payments. I think it is those numbers are almost certainly low, particularly the net number. And we got an inkling of this, Robert, because what the Senate really does not like the PCM, the Texas Senate was made very clear they don’t like this. They passed the bill out of the Senate passed a couple bills, actually, that had a $500 million cabinet. Well, the generators,
Robert Bryce 10:49
this so called Guardian guard, Rails is the term that Yeah,
Doug Lewin 10:53
right. Right. Till 2012 as the the main vehicle for that. And I think that that bill will, I think that though will move through the house, I think that’s the main sort of electric market bill that will move this session, right, the house changed it to a net number and said, Okay, you guys say 460 with, you know, four to 60 million is what the PUC consultant says, Let’s cap the net at 500 million, though. They’re still crying bloody murder, they’re like, You can’t do that to us, it has to be higher? Well, you know, they’ve been running around saying it’s only two bucks a month, it’s only four to $60 million. But then when you try to put a cap on it, you know, they the truth kind of comes out that no, that’s not nearly enough money, it’s going to be many billions of dollars.
Robert Bryce 11:33
Well, so just to revisit, so I’m just looking at the electric power monthly with you, just to give you the reference on this. So the total, this is the total value of electricity sales to induce customers in Texas, last year, $46.5 billion. And we see of that 23 billion was in residential and rates went up a huge, huge amount from between 2021 and 2020 to 14 billion for commercial and about 9 billion in industrial sales. So that 46 billion is just the value of all the electricity that was sold in Texas last year. It’s just a very large number. But it is but the capacity mechanism is and I had a meeting with Peter lake, the chairman of the Public Utility Commission in January, and they explained this to me, then and I didn’t understand it, then I’m not sure I understand it now is it’s a quasi capacity market, where generators would be paid to have generation available, in case there was there was insufficient generation at times of peak demand. Is that Is that am I gotten the gist of it? Are you shaking your head? And grimacing a little bit? Yeah,
Doug Lewin 12:38
well, you got it. Mostly I would I would just say, the way they’re describing it isn’t? And look, there’s a lot of details of it that are not to find one of the reasons it’s so hard to have a conversation like this. And actually, you know, as people I get asked this a lot like, what is it actually? Well, we don’t know. And if you look at the memo, that the PUC curiously adopted on January 12, two days after the legislature started, they recommended this way forward, even though the Senate had already told them they didn’t like didn’t like it, the timing was really kind of curious. But that memo is really like four pages of bullet points and questions. And so there’s a lot we don’t know about it, they really have not defined it. But in as much as it is understandable. They’re looking at taking a certain number of hours, for some reason. 30 hours is thrown around a lot. I don’t think there’s any analysis that she’s asked the 30s better than 40 or 20. But for some reason everybody’s talking about 30. Whether that’s seasonally or annually hasn’t been decided it even could be monthly. Another question that hasn’t been answered. And then what is that 30 hours? Is it peak demand? Is it net peak, which would be demand minus wind and solar resources? Is it the IMM independent Market Monitor wants it to be rolled cap, which is what the real time online reserves like the time when the reserves are the lowest. So there’s different ways to do this. And they haven’t decided, but you would pick some thing and you’d say, this number of hours during this condition on the system. If you’re running, we’ll pay you. And how much will we pay you? Well, that depends on and this is where it gets into a capacity market. What is the mandated reserve margin? What is the reliability standard you have? What is the demand curve that the administrators draw? Right? So now you’ve got bureaucrats deciding, here’s the demand curve, and we’re going to pay you based on this, it becomes an administrative and administered market, it becomes a market where the generators will have people over there all the time, effectively lobbying the grid operator to draw that curve in a way that’s most beneficial to them to pay them the most amount of revenue and we were, we’d be out of the days of having a really competitive market.
Robert Bryce 14:59
Let me let me come convoluted. I know, I know. It’s clarify any No look, it’s incredibly convoluted. And it’s one of the functions of the way the Texas market is now in ED hers is made the comment that the nodal protocols in Qatar 1800 pages long, right, so Well, let me ask, let me follow on that. So is because this is something I’ve thought about in reading what you’ve been writing about and all the different bills that are pending. And I’ll follow up that you’re right. In January, the Public Utility Commission, the Commission voted to approve this PCM idea. And it wasn’t I don’t think the ink was even dry. And Senator Schwertner put out a memo saying, well, we oppose this, right. I mean, it wasn’t even it happened almost instantaneously. One of the lead senators in terms of regulating the utility sector in Texas said no, this isn’t going to work. We didn’t we’re not we’re not in favor of this. But the question I’ve been mulling for a long time, is the market just simply gotten too complicated to administer properly? I mean, because this is one of the things that I’ll just a brief bit of background when I wrote my first book was on Enron now more than 20 years ago, one of the first guys I interviewed is a guy named Jim wall. Zell and he was a longtime gas executive, not gas executive, he quit when Ken Lay came on board. And he said, Look, Bryce, I don’t think that this deregulation of the electric market is going to be good for consumers. So two questions has, well, I’ll ask that question has been deregulation, restructuring been good for Texas consumers?
Doug Lewin 16:17
So remind me the gentleman you had on a month or so ago, I listened to the podcast you had with it was a Jim
Robert Bryce 16:23
Muncie, Jim Mirchi. Yeah. Mirchi Mirchi. Forgive
Doug Lewin 16:27
me, Jim Mirchi. i It was a great podcast. By the way, if your listeners haven’t listened that one yet, go back and listen to it. Again. I agree with him. I do think that deregulation on balance has been good for consumers. I think there is ample evidence and data to suggest that and I just generally am a believer in competitive markets, I think when there is a commodity or product or a service that can be offered competitively, it should be offered competitively. I understand the history of the electric utility industry, obviously, not fully, I’m trying to learn more about it like everybody else. But I, I love reading history books about the electric utility industry. And I, you mentioned insole earlier, I’ve studied him, and I’m fascinated by how the monopoly utility model came to be. And just as Mirchi said, on your podcast, there was a reason why it was set up that way, you guaranteed a rate of return, because capital markets didn’t want to put money into an electric grid. You know, at the Texas capitol, there’s electric light in the House and Senate chambers, there’s also gas lines running to the light, if you look up at the lights, there’s gas lines to this day running there. And the reason is, because they weren’t sure that this electricity thing was actually going to work out. Right. So in those days, in the early days of the industry, you had to give a guaranteed rate of return because that attracted capital, and it was phenomenally successful in attracting capital. And that’s why we now have ubiquitous electricity. But the question is, do you still want to send that signal like to a utility? Hey, spend as much capital as you possibly can? And we’ll give you 10% on every dollar you spend? Or is there a different signal we want to send now? And I think it’s a different thing. I don’t think you want to get into the days of of a regulated rate of return. And so, you know, capital, I think, I think that competitive markets, and I think there’s plenty of evidence to support this, have driven prices lower for consumers. Does that mean it’s perfect? No. And just like Mirchi said, you know, I think quoted Churchill, right. It’s like, it’s the worst system except for all the others. And if you look at what, you know, they have in Alabama, or, you know, anywhere, you know, Southern and Duke are operating. I mean, these are, these are these are fiefdoms right where they effectively Alabama is a great example where they get whatever they want out of their regulators, they get ridiculous rates of return. And that that’s that’s a fleecing of consumers. I’m just a fan of competitive markets.
Robert Bryce 19:04
Well, let me follow up on one point you made there because this is something I’ve also thought quite a lot about. And I heard the idea from long time ago, from a guy named Mark Gabriel who used to run the western area Power Administration. And this was 15 years ago, he said, you know, we’re getting we’re Miss apprehending the electricity business. He said, we’re selling it like a commodity, but it’s really a service. And that idea kind of percolated for a little while until I went to Lebanon and saw that the media, the generator mafia, they don’t put meters on their customers, they don’t they sell amp, they sell amps. They don’t they don’t care how much how many, how much energy they’re using. They’re where they’re concerned about power, right? They’re selling it as a service, not a commodity. So is electricity a commodity or is it a service?
Doug Lewin 19:50
If what a great question, it’s both right and and I think as I think with each passing year, it will become more and more More of a service and less and less of a commodity. Let’s let’s take
Robert Bryce 20:03
in what’s the point? And why and why is that?
Doug Lewin 20:07
The reason for that is that I think, you know, there, I mean, you know, there’s the great quote that goes back, you know, 30 or 40 years or whatever, from Amory Lovins, the founder of Rocky Mountain Institute, who says, you know, people don’t care at all about a kilowatt hour, they want hot showers and cold beer, right? That’s right. I mean, you know, in in February, people would have paid a whole lot of money for a hot shower, right? In February 2021, in Texas, right. So it’s really what you care about is what you get from the power nobody actually cares about, you know, start talking to somebody about how it actually gets generated and a turbine spins and it goes over the wires, and they’re like, oh, fuck, we care. I want to watch Wow, sorry, I shouldn’t cut say you complete that.
Robert Bryce 20:53
podcast, we can say, well,
Doug Lewin 20:54
you know, they just want to watch the show and go to the fridge and know their beers cold. And so I think actually offering it as a service. Let me let me give an example of how I think the market is changing. I think there’s a there’s a company based out Houston called Enchanted Rock. And Shannon rock sells, effectively, little micro grids to not so little, you know, megawatt scale, but to a lot of customers, two of their most prominent customers are heb and buches. They they buy these systems, because he just got tired of Centerpoint a monopoly utility to this day, right? Even with restructuring and deregulation, we have monopolies in the state of Texas, those are the poles and wires, companies Centerpoint was so unreliable for them, that they were having to throw out, you know, just, you know, dumpsters full of food on a regular basis, because the power would go out. And they decided that they would go ahead and purchase these small gas generators that would run on site, they also do a ton of not Enchanted Rock, but he does a lot of solar and storage as well. And I think this is this is like the mix of the future, right? It’s gonna be small gas that were for when you need it, solar and storage for most of the time. And what they ended up with then was a system that basically had complete uptime, they didn’t lose, they didn’t lose power at their stores, and that had Enchanted Rock systems during Erie. They did in Austin, because Austin wouldn’t allow them to have Enchanted Rock systems here. Because it’s their territory, they got a law on change that and now that I think they’re able to have the systems here. But that that is selling energy as a service, that is a company that said, I will pay a premium because I don’t want to throw food out and I want to be able to serve my community, when there’s a hurricane, or there’s ice storm or whatever it might be. It is critical that we have power all the time. So they’re buying it as a service. I think and this is one of the things I love about a competitive market, right, you mentioned gritty earlier gritty as a as a as an example of a bad example of a competitive, you know, offering that didn’t serve customers well. But I think within the competitive market, you know, you’re going to see, and you’re already seeing this in upstarts like octopus and ohmconnect. And David energy and even Tesla offering customers that sort of, that’s where you’re getting is that energy as a service, you’re starting to get to that point where none of these companies are quite doing this yet. But I think this is where it’s going. I think Robert, before too long, will be at a point where a company can say to an electric customer, just you know, any homeowner, if you let me see your bills for the last couple of years, I think I can offer you a product that is 10% lower than that. And you’re just going to pay me that 10% Less, I’ll put solar panels on your roof, I’ll put a fancy you know, Evie, level two charger in your garage, power, you know, a battery on the wall, and a smart thermostat in and we’re going to put little sensors on your pool pump and on your hot water heater. And I’m going to be able to control these things, you’re going to tell me I’d never want the temperature below this or above that. And how if that band is wider than your price goes down. If that band is narrower, your price goes up a little bit within that band, I can move it and their profit will be how much they can keep that cost down. Right. So if the person’s was paying $2,000 A year and they say now your bill is 1800 and that that provider as a service is able to then modulate the use inside the home and bring that down to like 1400 they’re clear in a profit of 400, the homeowner saving 200 And you’re not telling the homeowner you need to do anything. It’s all automated. You don’t have to worry about changing your behavior or anything like that. I think that’s the direction we’re going.
Robert Bryce 24:59
So it was You’re saying that Doug, what I’m hearing is that the generation is moving closer to the customer.
Doug Lewin 25:05
I think you know, that’s distributed energy resources, there was literally a report out from Brattle group, one of the most prominent consulting energy consulting groups in America, that said that if we have what are called, these are often being referred to now as virtual power plants. So if you take the example I just gave, you know, and you add that, you know, take take 1000s of homes that have solar and storage and the smart charger for their vehicle, and the pool pumps and all that stuff hooked up to sensors, now you have those 1000s of sources that are each can get a kilowatt or two kilowatts, and you times that by 1000. Now, you’re into the megawatt range, right? And you times that by millions, and you’re into the gigawatt range. And so, yes, I think that that that is that, that citing the power, closer to where it’s used, making the usage itself smart and connected, that that sort of a system, distributed, decentralized, digitized all of that stuff. I think it’s actually closer than we realize.
Robert Bryce 26:10
And so is that going to be good for the consumer?
Doug Lewin 26:14
I think so. What the What the brothel report showed was that, if we did that, I think the number they got was like, I’ve only read the article about I haven’t read the report yet. But it’s like, I think they said something like, if we got 60 gigawatts worth of those virtual power plants, it could save on the order of 20 to $30 billion for consumers, it’s a lot cheaper to do that than it is to build big central station power plants, which is the salmon soul model. Right? Right. Fundamentally, what we’re talking about right now is a move away from the salmon cell model to something very new.
Robert Bryce 26:46
And that was always toward the bigger power plants, because of the enthalpic efficiency of having a bigger power plant, they were more thermally efficient. And therefore, because of that, then it made sense to make them big, and run them 24/7 sell as many kilowatt hours as you could. And that was how Ansel drove down the price of electricity right over time. But now, because of solar and storage, that’s changed. So let’s talk about storage for a minute now. I’ve followed the battery business for a long time. There are a lot of battery companies, there’s a lot of battery capacity looking to get into the Texas market. Do you know how much battery capacity is pending? If you’re pulling out a paper, they’re like, you know, this number right off the top of your head? Well, how much is it? What
Doug Lewin 27:29
what are we know I’ve totally got the paper because I want to make a note and not forget to say something about insulator. So but no, I’m storage. We right now, Robert, we’ve got three. I think we’re I think we’re just a little over 3000 megawatts might be like 32 or 3300 megawatts to put that on, you know, to put some scale to that Austin energy’s peak load is roughly 30 504,000 megawatts we’ve got about an Austin worth of storage. That’s a phenomenal I mean, that’s that’s a 10x increase in less than two years. ERCOT expects that by summer of 2024. Not this, obviously not this summer, but next summer, that will be at about 10,000 megawatts, well, it’d be another 3x. By then there’s a lot more in the queue. Hard to hard to say much beyond that, right? Because so much of it just depends on what happens in the intervening time period. But yeah, storage is we’ve got a lot of it. And it is, a lot more of it is coming in a big way.
Robert Bryce 28:29
So 10,000 by 2024 in the state, and I’m just remember it just off the top of my head. So the US has about 1.2 terawatts of capacity, Texas would be about 10% of that. So we have about 110,000 megawatts of capacity generation capacity in Texas. Isn’t that right? Something like that.
Doug Lewin 28:47
That’s you’re right, in the ballpark? I don’t know exactly what the number of the capacity is. But it’s something we actually have more than that. But a lot of that is wind and solar. So you would you know, you’re never going to get 100% capacity out of wind or 100% capacity out of solar. So like you you direct that 100 Sounds about right? Our peak usage is 80,000 or 80,000 megawatts, or 80 gigawatts that was July of last year.
Robert Bryce 29:08
Right. And that’s And therein is the key right to being able to size the grid for those peak times. Right, because the peaks last generally don’t last very long. But you have to have that ability to meet that demand. 24/7 365 right weather. So will the batteries help in the winter peaking because that’s one of the things that we’re seeing. And that was one of the issues around winter storm URI. Will we saw in February where wind and solar went to Cancun with Ted Cruz again, and will batteries be able to step in, when it gets cold and when it gets super hot, will that be able to do that peak shaving? Isn’t that the term that that that were that was that where they would be deployed?
Doug Lewin 29:50
So I think so there’s two different there’s there’s really two things I really think winter and summer have to be treated as very different problem sets and we ought to we ought to address them. such and to be clear, right? So, renewables in February Yes, they were. They were quite low then I will say in December the December 22, December 23. One without renewables that we’ve been thermal only you saw what happened at TVA right. TVA had outages. TVA has about 2%, renewables there 98% thermal system, that outages why because a lot of their thermal plants broke, right equipment breaks and extreme cold and extreme heat, gas. And coal and Texas have have had big problems. So So to be clear, all resources struggle when we’re in these extremes. And we’ve got it we’ve got to figure out how to deal with that. Let’s let’s talk about summer first, because actually in the summer is easier, not easy. It’s a challenge, no doubt about it. I think winter is the much more wicked problem. But but summer, that’s what you said earlier is exactly right. Right. It’s very short time periods, right, where you’re going to have scarcity. And it particularly with all the solar we’re getting. So we’re over 15 gigawatts right now. We are trending towards at least 20 to 24. Probably by next summer. In fact, I think we’ll see, we’ll be closer to 20 than 15, probably even this summer, getting closer to like 2425 by next summer, and potentially going much higher than that it’s going to depend on a lot of things, including, you know, what the legislature in the PUC and ERCOT do and we can talk more about that. But that solar resource is phenomenal for the summertime. Right? We are very used to having very hot summers, very high demand, not just on like July 13 Last year, but just throughout the summer, right? Consistently days over 70,000 megawatts, right, that’s pricey that’s expensive for consumers, solar is going to knock those prices down. We’re going to see that some this summer I think we’ll see even more next summer. Solar is phenomenally coincident with those peaks at three or four in the afternoon on hot days when there’s not a cloud in the sky as most most Texas summer days are, but does create a ramping problem, right. As we all know, this will be news to none of your listeners, the sun does go down. The nice thing about that is you know the sun’s going down, you know precisely when the sun is going down. This is a mystery to exactly no one so you can plan for it. And then you do have this ramp where the sun goes down. Demand is down to but not nearly as much as as the solar production. So then you got to figure out how to fill that one or two or maybe on some days three or four hour gap. Storage is beautiful for that. The other thing that’s beautiful for that is demand response demand flexibilities, what we were just talking about with distributed energy resources. Folks have you know, battery storage in their garage, whether on the wall or in their car, it could be deployed during those times. smart thermostats, you just make the house colder at three or four, you know this, this will be terrible for Texans. Hey, we’re gonna make you colder in your house in July and in Texas, and you might actually get paid for it right. So you pre cool your home, then you don’t have to use your AC during that eight or nine o’clock period at night that Chairman lake was talking about during the press conference just the other day. So all the key to the summer, Robert is flexibility. Right? It’s that operational flexibility. Reciprocating gas engines, right, like LCRA made announcement a while back, they were going to build some some gas plants. They’re all like 19 megawatts. They’re very small. You know, the these are just meant to fire up for a few hours and then shut them down. Right? The flexibility is really going to be the the code word for the summer. Well, let’s
Robert Bryce 33:51
follow up on that. And then I want to go back to the winter problem. Because well, I recorded a podcast, we haven’t shared it yet with a guy from word Scylla. Oh, gosh, what is his lesson? mucin is his last name. But we talked about that LCRA deal. 190 megawatts? I think it is 10 of these big 50 SG massive reciprocating gas fired engines, right? They can fire up and shut down in a matter of minutes. He has no water and can be deployed in a whole lot of places. Right. So that to me is a really interesting technology even compared to gas turbines. But it occurs to me too. So just back to Enchanted Rock are those on site gas turbines that they’re deploying are those are those recent engines that are their deployment and deployment you said for buches and for HEB.
Doug Lewin 34:39
I believe that they are gas because they’re I know that that is one of the things they talk about is like you know the gas plants that were shut down during URI. They talk about how because they’re on the distribution system. They’re behind the city gate as it’s called right and they they are not shut off They have very reliable access to, to gas during the storm. So they may have different things they offer their customers. I don’t know what their whole portfolio is, but I think most of them are gas.
Robert Bryce 35:10
Right. But but you didn’t, I’m just curious whether your they were turbine engines or reciprocating engines, or maybe it’s beyond what your familiarity with is, that’s, that’s okay. Um, just, to me, I just find it very interesting that these, you know, these, this such an old technology, the auto cycle engine is very durable, right. And the service cycles are very well known. And these engines are incredibly durable and that they’re now being deployed in a whole different way. That was pretty unexpected, I think.
Doug Lewin 35:37
And the key to them, is that their low capacity factor, right, you don’t? The point is, and look, you know, you mentioned how high power prices were during 2022. Why were power prices so high during 2022, because Vladimir Putin invaded Ukraine and because gas went to 789 dollars and as money renewables, as we have are still a gas dominated system, the majority of the capacity on our system is gas, the majority of the generation on our system is gas. And so we’re highly dependent on it. And when, when the gas price of gas goes high, so does the price of electric bills. When you have wind and solar that you have a zero marginal fuel cost, you still are going to need gas. But the lower capacity factor it is the better this is. This is why I think that it’s so sort of problematic that we’re moving to or maybe moving, hopefully not moving to the PCM, we’ll see you the way that all that goes is the market that we have set up right now is incredibly rich for those kinds of generators. Right. So like, there’s all this thing of like, well don’t pay wind and solar, they’re already getting federal subsidies. They’re not producing on peak, we have a system that richly incentivizes these flexible resources like reciprocating engines like storage, like demand response, if we need some, we need some market changes to allow demand in to compete, and we can talk about that. But those flexible resources are richly compensated in the market right now. And if we move away from that, you’re actually sending a signal that you want more of what insole was building, you want more of like, well, he may have been building reciprocating engines, but like where the industry went in the in the 50s and 60s and 70s, with great big six 800 megawatt coal plants and things like that. It’s really it’s trying to drag the market back into a different era than letting it evolve and really richly compensate resources that are fast acting, low capacity factor.
Robert Bryce 37:36
And the reason they’re they would be compensated is because they can then jump into the market when prices are high. That’s right. That’s exactly it. So and it’s interesting that you mentioned it LCRA Lower Colorado River Authority for people that are not familiar with Texas. This is Quays? Well, it’s a governmental entity based here in Austin. It operates hydroelectric dams along the Colorado River and has owns coal plant owns gas plants, and is a big player in the power markets here in Texas, and has been apparently pretty successful in lobbying in the legislature and had some possibility of even being favored some favorable legislation to them. But I want to just repeat too, because that’s one of the other parts of this that Texas has a lot of cooperatives it has investor owned utilities, it has genetically owned utilities, it has these retail electric providers. It’s a very complicated market. Right. So that’s one of the other things that’s so interesting about what’s happening in the legislature in the last day of the legislature is May 29. I believe you your your today’s pointed out. So the stakes are just enormous in terms of the billions of dollars that are now potentially won or lost, depending on who gets favorable legislation passed. That will help them socialize the costs and privatize the profits the American way. Right. This is this is this is how it works. But the is well let me ask this written this about this question here. Texas, there’s a lot of growth and renewables here. We’ve been able to the credit lines were built the high voltage transmission capacity was built here. Do we need a lot more transmission capacity built to accommodate more renewables in Texas?
Doug Lewin 39:15
Well, this this was another thing that that great podcast you did with with Mr. Mirchi. You No, no, no, forgive me. That was the one with Sheffield. I’ve been listening to some of your podcasts. I liked them very much, Robert, the one with Scott Sheffield from Pioneer. And he talked about, you know, the electrification of the Permian Basin, right that they’re trying to get. So for those for those that didn’t listen, I’ll back up a step. But y’all should listen to that podcast too. So you gave me a couple of plugs. Now I’ve given you a plug in your podcast on your bucket. So the growth of oil and gas in the Permian has been, you know, just astounding, unbelievable. I don’t even know what adjective right I mean, it’s just it’s It’s beyond what anybody could have imagined before. You know, shale and hydraulic fracturing and all of that. So what is happening now, in the Permian Basin, though, is that a lot of the producers, including pioneer who you had Scott Sheffield, the CEO of that company, the largest producer, in the Permian, in Texas. And he’s saying that he and many of the other producers want to be grid connected, right? If you think about trying to power some of these huge rigs, right, very power intensive equipment, with diesel, diesel is very expensive, much more expensive than grid power, particularly more expensive than grid power when you have renewables that are zero marginal fuel costs, right. So most days, power in Texas is 10 or 20 bucks a megawatt hour, that’s, that’s $1, that’s a that’s a penny or two a kilowatt hour, that’s very cheap, they would like to be able to get that power. They can’t get it because there’s not enough transmission to connect their operations. So this whole thing that transmission is like only some subsidy to wind and solar could not be more wrong. Everybody needs transmission. We all need transmission to be able to get electrons to where we live. And the oil and gas industry of all folks need more transmission as well. What he said and there’s a there’s a report out from was an IHS market or s&p Did this report that basically said right now, the demand of oil and gas for this grid connected to something like three or four gigawatts within 10 years, they expect that to be three or four times that amount. They basically need a Houston worth the power to power their operations to be connected in the next 10 years.
Robert Bryce 41:53
Right. The Bureau of Economic Geology, the UT Bureau of Economic Geology has also done an analysis on the power demand in the Permian. And so yeah, the goal and it was a little surprising to me that Sheffield talked about it and it’s frankly his way the way that he did they want to power their drill rigs. They want to power their frak, frak, fleets, and all of their pumping right to all of their oil and natural gas compression, get it all grid connected, but they’re very constrained on the amount of transmission that’s available out there. And I didn’t quite understand it. A friend of mine is very familiar with Wartsila. Why don’t they get a bunch of word Sillars out there, they don’t need as much transmission. They can do it with smaller distribution lines and so on. But nevertheless, I forgot where we were going with that. But the the transmission so the transmission, I agree. Yeah, there’s no doubt there transmission constraints in West Texas. But there’s a lot of you talked about the amount of solar that’s coming on. Wind is from what I see is slowing down in Texas, it’s going down. That’s right. across the US solar is ramping a lot of places, land use conflicts around that, but nevertheless, not so some in Texas as well. But as solar able to ramp to expand because it doesn’t need as much transmission new transmission capacity. What tell me Give me your view. We talked about the Permian, but overall in the state, do we need more high voltage transmission? If so where?
Doug Lewin 43:13
So So to answer the first question, solar is more flexible as far as where it can cite and sort of getting past some of the transmission bottlenecks. So we are seeing now and last I heard this might have been a year ago. So it may be even more now. But somebody had said to me like a year ago, I think there are now I think this is right, if I’m wrong, I’ll email your correct if you could put it in the show notes. But I’m pretty sure this is right, about half of Texas counties right now have active solar development. So you know, obviously the best solar resource is going to be way out in West Texas. That’s true, not only because it’s a desert and just gets more solar radiation. It’s also true and people don’t often think about this, but like, you know, California has problems with solar and it’s in its so called, you know, duck curve, which we don’t need to get into but I think just just to think about it this way. If you’re in California, you’re in your your grid operator, and you’re trying to provide power for San Francisco la San Diego that’s west of where your best solar resources right so the sun is setting on your solar resource before it sets on your load centers. That’s bad. In Texas, it’s the other way around. Think about Houston compared to the Pecos right like the wet Far West Texas right so the sun goes down on Houston. Much later it goes down out of West Texas. So one more reason why Texas is better than California, in case you needed another one. So that so that that solar resource in West Texas is where that’s most of where the solar is going. But you are seeing more and more solar development in North Texas in East Texas and South Texas, because it’s still while it’s not as good a resource as West Texas, it’s still a really really good solar resource. It’s still Texas we still have a lot of sun Sunshine, right? So you’re seeing that, as far as where we need the transmission, though. You know, last year the independent Market Monitor calculated the cost of congestion to the market. And congestion is just basically right you can you have the power it’s being produced, but it can’t get to where it needs to go because there’s not enough room on the powerlines. That cost consumers $3 billion in 2022. Alone. So that number will grow. If we don’t build new transmission, I’m often critical of the Public Utility Commission. So I do like to give credit to the Public Utility Commission where I can, they did approve a new power line down to South Texas, into the Rio Grande Valley. And that was critical because they it’s a little bit islands down there, they there’s not a lot of connections to the rest of the state. And that’s a reliability problem. For the folks that live there. It’s also a reliability problem for the rest of the state. Because we have a really good wind resource down there, the wind that blows on the coast, you actually it actually produces quite well at three, four or five in the afternoon, and even into the evening hours as opposed to West Texas wind where you get more of a low in the middle of the day you anybody that’s been to the Texas beach, on a summer afternoon knows the wind is usually blowing, right? So that transmission is going to help bring that low cost power up. It also helps the folks down there when that wind is still there able to bring power in from the rest of the state. But we need a lot more of it mostly going out to West Texas, to the Permian, like we talked about it and more down to South Texas.
Robert Bryce 46:32
Gotcha. What about nuclear energy? And this is some discussion I’ve had with a lot of people about, you know, there’s a lot of money that’s being put into small modular reactors. Dow has announced that it’s going to be it wants to build SMRs at some of its Gulf Coast facilities using a high temperature gas reactor from x energy. I’ll ask the question as succinctly as I can. Can nuclear power work in a room in a deregulated or restructured market like Texas?
Doug Lewin 47:04
It’s a great question. Maybe I think it can’t I think it can work in the model that you just described, where there’s a big off taker like down when you think of the way renewables really started to rise was they had corporate off takers with good balance sheets, credit ratings, and you know, money behind them purchasing the projects? Right? I mean, some of those early Walmart PPAs, and stuff like that really accelerated the renewable energy industry, perhaps that could work for nuclear as well. You know, I don’t think I don’t think I’d been if they
Robert Bryce 47:38
were going to tell me, but if they were going to try and participate in an energy only market in a market that, you know, I’m gonna say it is in Texas, has been heavy, the thumb is on the scale of renewables in Texas and elsewhere, because of all the subsidy investment tax credit production tax credit, right. You know, if I was building capacity in Texas, or anywhere else, why would I build anything but wind and solar given that you could get 44 cents out of every dollar capital you need from the tax credits? Right, so So how have nuke How would nuclear be able to compete in a market where you’re only able to sell watt hours and you’re not getting those kinds of tax credits that the other generators are getting?
Doug Lewin 48:18
Well, they do get them now. So nuclear now does get that tax credit, existing and new, right. So all the four units in Texas are now earning the production tax credit, just the same that solar and wind does. So the the tax credit, or the inflation Reduction Act was changed to be technology neutral, as long as it’s a zero emission source, it earns it so that that goes for gas with carbon capture that goes for nuclear. They all can earn it now. Yeah, yeah, that is in effect. So nuclear now. Okay. Well,
Robert Bryce 48:47
I miss apprehended that I didn’t realize that the existing nuclear plants could get the production tax credit. So that’s that
Doug Lewin 48:52
now they couldn’t before and storage to by the way, storage was not eligible unless it was co located with solar, which, you know, it’s fine to co locate it, that’s great. But there’s no reason why, you know, if you put a solar plant over here and a battery over here, they don’t need to be at the same spot. You could still It’s the beauty of the grid, right? You could store the power no matter where it’s coming from. But that’s the way the tax code used to be Now, now, storage can get that tax credit as well.
Robert Bryce 49:20
Okay, well, so that’s interesting. Now wait a minute, you’re saying battery storage, you’re saying CCS I’m you lost me there you were talking about carbon.
Doug Lewin 49:28
So so what I meant about carbon capture yet there is the there is the carbon capture the 4545 Q, you know, 80 $85 Whatever it is, but what I was referring to is there actually was a power plant announced there’s an announcement on this. They’re supposed to break ground at some point and be opened by 2026 company called net power. I believe occidental is the one that’s buying the power, one of the largest producers in the Permian. And they’re going to build a 300 megawatt gas plant where the carbon In is is captured pre combustion, this is the album cycle plant that will be able to earn the production tax credit because there’s zero emission.
Robert Bryce 50:09
Gotcha, because they’re gonna write that and so they’re capturing the co2. I just wanted to make sure I was clear but but just to be clear on the nuclear part of this because what as I’ve looked at Dow’s deal, I thought, well, maybe Dow is just going to decide, well, we’re going to use all the the process heat from the from the reactor, we’re going to use all the electricity ourselves, and maybe not even sell the electricity into the ERCOT. Market. But let me ask again, if it’s, if so you’re but if I’ve heard you correctly, an SMR coming into Texas, how viable is it for them to try and get get into the Texas marketplace? When they have to compete with wind and solar given their I mean, they have regulatory issues, but just the the high capital costs that are going to be with nuclear? Just if you’d look at it from that standpoint, how are you think they will be able to compete in the ERCOT? Market?
Doug Lewin 50:58
I mean, it just all depends on how far down the price curve, they can come, right I’m I’m a little bearish on nuclear, just because the costs are just so high in the cost of combination of wind, solar storage, even even the way geothermal is coming down the cost curve, the way these gas carbon capture plants are coming down the cost curve, I, I kind of hope I’m wrong. I’d like to see, sir. You know, some small modular reactors work. And I’m humble enough that I could be wrong, we could we could talk and it wouldn’t be five years, maybe 10 years. And I’ll just say, Yeah, I was wrong, those things are crazy, I just think that the price is going to be too high. But what Dow could do with that is use that power behind the meter as it were right for there, I assume this is what they’re probably going to do. And then let those electrons flow into the grid when power prices really high as well. You know, Dow does this today, with their combined heat and power plants, Dow and a bunch of others. If you look on the ERCOT reports, where they where they write down all our capacity, there’s a thing there that says private use networks, pawns, they’re called in the industry and, and you know that they do that they’ll don’t if depending on what their manufacturing, they you know, for some things you just can’t turn off. But for other things, you can just shut down your manufacturing and let that power flow in and take all that money. That’s that’s coming from the market. And that’s I think that’s that’s a good thing. That’s, that’s more power. And when we need it,
Robert Bryce 52:23
we’ll have to be clear. I mean, I’m pro nuclear, but I agree with you, there are a lot of hurdles that have to be overcome. And Nuclear Regulatory Commission being one of the first the biggest one, and then the supply chain, just in terms of who’s going to build it and where and then you’ve got the fuel supply issue, which is a whole other complicated set of issues. A quick station break, my guest is Doug Luhan. He’s the president of Austin based consulting firm called stoic energy. You can find him at Doug luhan.substack.com. So, we’ve talked about a lot of things in terms of what you know where the market is going and give me your crystal ball. Now. We got a few weeks left in the Texas Legislature, how do you think things are going to shake out? Because, as you as we’ve talked about, there are many billions of dollars at stake here. Let me ask the other Let me ask this question. First. What should happen? What is what if Doug Lewin was in charge of Doug Lynn was governor? What would you know?
Doug Lewin 53:20
We’d have a lot of other problems if I was covered. If
Robert Bryce 53:24
you were the governor and we throw a habit out and I install you As Governor, what would you do? What would be the first priority? Because the question of course, what was being driven? Largely, I would say by the winter storm URI, right, the blackouts were everybody. We don’t want this to happen again. So what’s your ideal scenario for assuring reliability in this market that is needs more assurance of reliability?
Doug Lewin 53:48
So so I will answer your question is like what I would do if I was in charge, but I will say I think one of the geniuses of our democratic system and even sort of our political economy and the you know, markets and all of that is that we don’t have a system where one person because I don’t know, right, like I know a couple of things, but I’m not I’m not smart enough to know like, exactly what should be done. And this is why I think it’s so important to have markets with as strong a signal price signal, competitive, you know, as possible so that markets can actually make those decisions about where to allocate resources. But I’ll say this, you know, we talked about this earlier, Robert, we started talking about summer and winter and how they’re very different. I never really got to winter. I think what we need is to make sure we put a I like to I like to put it this way if you if you think about football it take a football analogy here. I think what is going on right now is that the PUC and ERCOT and I don’t know how involved with this, the governor is maybe throw him in there with that group. They’re trying right now to run like triple Reverse flea flicker on the first day of practice. We haven’t talked about blocking and tackling yet. And I know they’ll say we have we’ve been doing weatherization inspections. But we talked earlier about December 22 and 23rd, and how renewables actually helped a lot to on the 22nd and 23rd. On the night of the 23rd. Wind dropped, the sun went down gas powered the system I’m not I’m not you’re trying to do anything but talk about the facts of the situation. On the night of the 22nd. At 9pm. There were 6000 megawatts of thermal plants out not let’s let’s let’s be even more specific gas and coal because nuclear did not have problems during this one. We lost what are the nuclear units during your day the other three stayed up. During this December event. None of the nuclear units went down 6000 megawatts of gas and coal not an extraordinary number pretty average number 9pm 9am. There was 14,000 megawatts of gas and coal offline. Over that bitter cold night we had 120% increase in gas and coal outages. We have not properly weatherized our gas and coal power plants, gas output gas supply output you know from from the Permian and from the eagle furred and I guess through Haynesville and I don’t know if angel had any problems but was down 30%. As reported by wood Mackenzie, I believe the numbers actually 32%. So we have not properly rig weatherized our gas supply and demand was off the charts. The ERCOT predicted we would need like 60 gigawatts we ended up needing 74 It was a 20 plus percent demand forecast mess because we haven’t weatherized our homes and buildings. So we’re wasting a ton of energy and you waste a lot more when it’s five degrees then you waste when it’s 50 degrees. And that’s because of the problem of resistance heat via very inefficient heat. People don’t know this but your your your unit that sits outside your home is true. Where I live, it shuts off it’s designed values down to 32 degrees and then you heat your home. While this is not your my home because I actually have gas heat but if you have electric key, it operates from 32 degrees and when you drop below 32 degrees you start heating your home with a toaster oven with a fan blowing over your heating your home with a hairdryer. It’s incredibly inefficient, and our demand spikes. So to solve the winter problems we need to weatherize, weatherize, weatherize, gas supply power plants, homes and buildings. As far as the other stuff about the market, and what do we need to do is those aren’t market design problems? Right, that none of that does anything to do with market design? Well, I shouldn’t say that there might be a little overlap there to market design. But but mostly it’s a problem of regulation. I look at it this way, Robert, it’s like, you know, in a capitalist system, you know, in any system, do you want the state like deciding which restaurants you can go to? No, you’d like for the free market to, you know, there’s restaurants, some of them do really well, and they stay open. And some of them don’t they close somebody else moves in. But you damn well want a health inspector, right? You want to see that a on the window when you walk in, right? Same thing, I want a diversity of energy resources, I want them competing in a market. And I want an inspector there to make sure the damn thing is going to work when it gets down to zero degrees next time. But as far as the market design, I actually think that the market we have, if they were they it’s certainly going to need some tweaks and enhancements as we go along. But the PUC made a change one year ago where they increased the scarcity pricing to generators that injected $2 billion into the market in 2022. Alone. This is a map we talked about this earlier right generated the $45 billion system. About half of that is generation. That’s a 10% increase going into the power the wholesale power generation market last year alone. That’s a pretty powerful price signal to LCRA, who by the way, is building new gas plants. Right.
Robert Bryce 59:07
So I want to just to interrupt here, Doug, because you jumped right to him. So this additional money, then that is being incentive. That is now the PUC is allowing for forgive me for not following what you just what that the market has been tweaked to incent more thermal generation or more dispatchable generation am I am I am I reading that back correctly. Close
Doug Lewin 59:29
it is called the operating reserve demand curve. These are the this is the scarcity pricing in the system. It is technology neutral wind and solar can get it but it only kicks on when we’re really close to you know our reserves are being depleted. So something like 80% of that money is going to thermal plants to gas coal and nuclear plants. It’s
Robert Bryce 59:53
so do we have new gas plants being built now? I haven’t checked the earth and how much how much capacity is that?
Doug Lewin 59:59
So According to the independent Market Monitor, and this is in a report that she’s she gives to the PUC in the legislature, I think since 2014. We’ve added I think the number is right at about 8000 megawatts, we’ve been adding about 1000 megawatts a year, on average, that’s held the last two years, we’ve added about 2000 megawatts. Most of that is a company called Wat bridge that has added some small power plants in the Houston area. But then there’s also the LCRA. One. And by the way, when we have these discussions, we almost never include those Enchanted Rock units, right? I mean, we sort of discount the distributed stuff that’s going in, but we shouldn’t do that. That’s also generation. And in the interconnection queue, there are 12,000 megawatts in there right now, not all of that will get built, but some of it will. And if they don’t put this PCM into place, we may lose some older plants, I would argue that’s good. Because when you lose the older plants, you’re you’re increasing that price signal for newer plants to come in. And when you’re dealing with a with a with a winter extreme, or a summer extreme, let me ask you this, Robert, you’re about to go on a road trip and it’s 100 degrees. Do you want to hop in a car built in the 50s? Or 60s? Or do you want to hop in a car built last year? The ladder? Right. So right now we’ve got a system where we’ve got 5000 megawatts It was built in the 60s, we got another 10,000 megawatts It was built in the 70s. And we’re cobbling stuff together with duct tape and baling wire and open, that will get through the summer in the winter. I think we want to retire those older plants and build newer ones. And as long as you have that scarcity pricing signal there, that signal goes up every time somebody retires. So I actually think this the market that we have right now is quite well suited to the challenges that we have of integrating variable renewables and making sure we have enough at these at these times of extreme peaks.
Robert Bryce 1:01:59
Well, so if I’m, let me hear see if I’m hearing you correctly, you’re my right to assume maybe you think we that the legislature doesn’t need to do anything, in fact that if they do something, it might be better, might be worse than doing nothing that you mean, your what you’ve said just implies to me that you think a lot of what this legislation is pending is going to featherbedding for the existing generators that maybe we don’t need to do anything.
Doug Lewin 1:02:26
Well, the legislation that has moved through the Senate and I believe was also voted out of house committee, Senate Bill 2012, is being referred to as the PCM guardrail Bill, what they’re basically what they’re trying to do is put some guardrails on what the PUC wants to do with the PCM. And not let it be, as I have called it, and many others, including the Texas Oil and Gas Association, has called you know, I agree with them on this, I probably agree with them on a lot of stuff. But they they said that this would be a blank check for generators. And so the bill that I do think they need to pass is like a PUC if you’re going to go forward with this thing, you don’t get to just hand a blank check to the generators, there’s going to be some cost cap and control on what you’re doing here.
Robert Bryce 1:03:17
So we could have a modified the capacity market that would have stopped on it in terms of what the overall cost would be to consumers. But it would in theory would over and you I think it was your piece today or the last few days where you said it’s not going to come into effect for years is going to take years to develop. But if it does get developed, and it does happen, then this SB 2020 12 would at least limit the cost to consumers or just not be a blank check to use your oil and gas associations. Have I gotten that right? You have? Okay, good. So we’re right at an hour. Again, my guest is Doug Liu. And he’s the president of Austin based a stoic energy consulting firm. Doug luhan.substack.com. Two last questions. What are you reading Doug? What? You’re in front of a big bookshelf of books or shelves of books? What? What are the top ones on your on your list these days?
Doug Lewin 1:04:09
I’m not reading it now. But I got Robert Bryce’s books down Robert Bryce, you’re up cronies. So that’s a great one. Highly recommend people check that out. Question.
Robert Bryce 1:04:17
The paperback is out May 16. The three years question of power. Yeah, question.
Doug Lewin 1:04:21
All right. Nice. So I just, you know, one that I just finished recently was was this one stolen focus by Johann Hari, honestly, it’s a it was part of my inspiration for starting the substack. I am like many other people quite addicted to Twitter. I don’t think it’s a sort of a force for good at this point. And I’m trying to like limit my Twitter use and that book really, really put into into what it’s not just about social media to it’s a great book. It’s about a lot of other things. I haven’t actually read this one a long time. So this is cheating a little bit. I hope you’ll forgive me Robert, but I really liked this one. We talked about so a little bit, you know, this one, the power makers by Maury Klein, I think it’s I think it’s, I don’t know if you know any others, Robert, I’m always looking for good histories of the utility industry. There was one written on insole. I forget what that one was called. But that one’s great as a merchant of power actually has what it was called. But those are probably the two best books merchant of power and power makers on the history of the utility industry. Those are those are a couple I also just, you know, I read last year, I read the fourth of Caros biographies of LBJ and I just finished reading the powerbroker about Robert Moses, all the Carroll books are fantastic. So sure how
Robert Bryce 1:05:42
good okay, well, that’s a good rundown. And then the last question, what gives you hope?
Doug Lewin 1:05:48
Yeah, I mean, I think there’s, there’s a lot that gives me hope. There’s a lot that worries me too. But I think I’m going to I’m going to talk about something we only very briefly talked about on this call. But geothermal power gives me hope, Robert, because I, the thing that I love about, there’s a lot I love about geothermal. Number one, it is a renewable zero emission source. Number two, it can actually be flexible. So you can you don’t have to just deploy it like like, you know, just at a steady stream, you can actually build up that pressure underground and release more of it at the times of peak. So when the sun shining, we got plenty of solar, we can sort of build up that that steam generated by the heat of the earth, and then wait till the sun goes down and release it. So it actually acts as a form of energy storage. And the other thing I like about is it uses the skill set of the oil and gas industry. I don’t think the oil and gas industry is going any I tend to try to be a realist and a pragmatist. I don’t think it’s going anywhere for quite a long time. But I do think there will be a decline over time. And geothermal is it’s it’s drilling, and it’s horizontal drilling, and it’s even. There’s even like some amount of splitting rocks, to be able to get into different reservoirs and stuff. So I love that a renewable resource can use the skill set of our oil and gas workers that that our state is relied on to build wealth for generations.
Robert Bryce 1:07:18
Well, that’s good. Well, we’ll stop there. My guest again, has been Doug Luhan, the president of Austin based stoic energy, Doug luhan.substack.com is where you can find him. Doug, thanks for coming on the power hungry podcast, great to catch up and great rundown of all the things that are happening at the legislature. So thanks again for coming on.
Doug Lewin 1:07:35
Hey, thanks for having me. Appreciate it.
Robert Bryce 1:07:36
And to all of you in podcast land. Make sure and give me if you’re gonna give me a rating on those podcasts things five 612 stars follow me on substack Robert price.substack.com and until the next episode of the parent power hungry podcast, see you