The Next Texas Energy Boom

By Michael Brower, Brower & Company
Patrick Cox, Texas Sustainable Energy and Economic Development Coalition
Jim Marston, Environmental Defense Fund

Executive Summary

The oil business is fading as the economic force in Texas. Oil production here has declined since 1972, and in 1992, Texas reached a milestone when it began consuming more energy than it produced. The spirit of the old-time wildcatters is not gone, however. Their modern-day equivalents are traversing the state looking for places to tap a different kind of energy (wind energy. Instead of oil pumps bobbing across the plains, Texans will soon see the graceful, long-fingered propellers of wind machines spinning in the breeze, generating electricity for homes, businesses, and factories.

Not just wind power will be coming to Texas. Solar power stations and collectors, energy tree farms, geothermal power plants, and other so-called renewable energy sources may soon be part of a large new industry bringing jobs and income to the state. Combining renewable energy with new and more efficient ways of using energy, plus greater use of the cleanest burning fossil fuel, natural gas, Texas could regain its energy independence and its role as a giant energy exporter.

Texas is a veritable powerhouse of renewable energy resources. There is sunlight, which the state (particularly the western half of it(has in abundance. In theory, Texas could generate all of its energy needs by collecting solar energy over just 1 percent of its land area. In addition, wind turbines sited on land suitable for wind energy development could produce up to 5 times Texas' current electricity demand. And geopressured-geothermal reservoirs near the Gulf coast could supply up to hundreds of years of Texas energy use.

Even so, Texas ranks very near the bottom of the 50 states in its use of renewable resources. Less than half of one percent of the state's energy consumption (one-fifteenth the national average (is being supplied by renewables (only Kansas ranks lower. Fortunately, there is growing interest in developing the state's renewable resources among the general public, private developers, and the government. This renewed interest is based on several important considerations, such as the declining costs of renewables, their job- and revenue-creation potential, and their environmental benefits.

Of all the emerging renewable technologies, wind power is likely to have the most success in the next several years because of its low cost, high reliability, and pollution-free operation. There has been a sudden spurt of wind plant sales around the world, and several projects totaling at least 120 MW will be built in Texas at sites near Big Spring, El Paso, and other locations. Wind developers are attracted to Texas by the many windy sites suitable for wind development here. Despite challenges such as connecting to existing transmission grids, at least 5,000 MW of wind capacity(8 percent of the state's total electric generating capacity(could be built here in the next decade at little or no extra cost to electricity consumers.

A wide variety of solar energy technologies could also find application here. Solar water heating and passive space heating for homes and businesses are already cost effective in many cases and can reduce fossil-fuel use by a substantial fraction. Solar (photovoltaic) cells are the least expensive source of electricity for thousands of remote applications not connected electricity grids, such as road-side call-boxes and signs and vacation cottages. What is more, the costs of solar technologies are going down, implying that more markets will soon open. In the long term, solar-generated hydrogen (a high-quality fuel that is far cleaner than natural gas(may become an export commodity for Texas, just like oil used to be.

Biomass may sound like a chemistry experiment gone wrong, but it is actually an extremely versatile fuel source which is able to provide electricity, heat for buildings and factories, and fuel for cars and trucks. Although not as clean as wind and solar energy (its environmental impacts are a significant issue (biomass generates few or no greenhouse gases, which contribute to global warming. According to our estimates, biomass (such as crop residues or energy crops) could provide anywhere from 5 to 20 percent of Texas' energy needs. New, more efficient, and cleaner technology needs to be developed if its full potential is to be realized, however.

By far the largest geothermal resource in Texas consists of hot, geopressured brines found 10,000 to 20,000 feet underground along the Gulf of Mexico coast. These unique reservoirs are really a blend of geothermal energy and natural gas. In theory, the reservoirs could provide hundreds of years' worth of Texas energy use. Even if only 5 percent can be tapped, however, the resource is still as large as existing reserves of oil and natural gas. Research funded by the federal government has demonstrated the feasibility of tapping these reservoirs for heat and electricity, but more work is needed for commercial development to be successful.

Renewable energy sources could supply much of Texas' energy needs, but they are not enough to eliminate the state's growing dependence on energy imports or to adequately protect the environment. To accomplish that, we must turn to the second key element of our sustainable-energy strategy, energy efficiency. Although it sounds high-tech (and sometimes it is), energy efficiency simply means learning doing the same things with less energy input.

Energy efficiency makes not just good environmental sense but good economic sense as well. For example, it creates jobs(many more jobs than building new sources of energy such as a large power plant. Efficiency also helps promote sustained economic growth by making the economy less vulnerable to the boom-and-bust cycle. Improvements in efficiency and cost savings to industrial, business and residential consumers increase competitiveness and lower the cost of production.

Because industry consumes 56 percent of the energy in Texas, improvements in industrial efficiency can have a major impact on the overall demand for energy. Industry in Texas has already reduced its energy requirements since the 1970's by improving processing and distribution systems. However, additional progress can be made by focusing on, among other things, effective demand-side management (energy efficiency) programs by electric utilities, transfer of technology from universities and research institutes, increased education on energy issues, and development of efficient and beneficial cogeneration projects (which produce both power and heat for industrial processes).

There are also many opportunities to improve energy efficiency in the residential and commercial sectors. They include improvements in heating and cooling, more efficient appliances and lighting and other areas. One promising approach is the "whole-building performance standard," which seeks to give designers maximum flexibility to reach energy efficiency targets. Other changes are needed, such as incentives to encourage compliance with Texas Buildings Energy Standards provisions, development of HVAC systems performance procedures similar to the envelope and lighting systems procedures in the existing standard, and evaluation of the Florida Building Performance Method to determine if that approach or a modification of it might be applied to Texas.

Despite its status as a fossil fuel, natural gas has a key role to play in moving Texas from an unsustainable energy economy to a sustainable one based on renewable energy and energy efficiency. Variously called the bridge fuel or back-up fuel to renewable resources, natural gas is by far the cleanest of the three main fossil fuels, and its abundance on the market today makes it relatively inexpensive. It is used in an enormous variety of applications, from advanced-technology combined-cycle power plants to home heating and cooking to motor vehicles. Texas still has large reserves of natural gas which should enable it to sustain gas production at near present levels for 15 years.

The vision of a sustainable energy future for Texas presented in this report will not become reality unless state government, businesses, and the public lead the way. The major benefits of sustainable energy are clear:

• The environment and human health. Pollution from the burning of fossil fuels has a tangible impact on the quality of life in Texas and the rest of the United States. As the second largest energy consumer among the states, Texas' role in these problems is substantial. Texas is responsible for about 12 percent of U.S. energy consumption and 13 percent of fossil-fuel use.
• Job creation and economic growth. As numerous studies have demonstrated, renewables and efficiency programs are a good source of jobs and income because they rely on local labor, land, and resources, and in the case of efficiency, they reduce energy expenditures. Rural communities would probably benefit the most from renewable energy development, since producing both wind energy and biomass energy requires land.
• Reducing financial risks for energy consumers. Renewables and efficiency investments are not vulnerable to risks associated with fossil fuels and nuclear power, such as future regulations or taxes on greenhouse gases.

The benefits of a sustainable energy strategy may be compelling, but for the most part they are ignored by markets. For example, the price we pay for oil and coal does not reflect their environmental and health impacts or risks such as global warming. The guiding principle for Texas' energy strategy must be to make energy markets work more effectively towards the state's long-term economic and environmental goals. This means creating the conditions that will allow good technologies and resources with strong prospects of success to begin to compete.

In the area of renewable energy development, an important step is to create a reliable and growing market for renewable technologies, a concept known as sustained orderly development. Doing so would not only help bring the cost of many renewables down, it would invite renewable-energy companies to set up shop in the state, where they would create jobs. One mechanism that would help is to establish statewide targets for both renewable energy and energy efficiency. Incentives (such as state tax credits or an extra return for utility investments in renewable energy(may be needed to achieve them. We propose the following targets:

Targets and incentives are only part of the package of measures needed to encourage renewable energy development. Texas could also fund (or co-fund, with the U.S. Department of Energy and private companies) demonstration or pilot projects to help gain experience with different technologies.

One area needing urgent reform is electric utility planning. Texas does not have true integrated resource planning, which is needed to ensure that energy efficiency and renewables are given adequate consideration in utility plans. The key elements of a sound and fair process include: consideration of the broadest possible range of demand- and supply-side resources and selection of those that meet customer needs at the lowest cost; consideration of environmental impacts; fair rules for competitive bidding that do not disadvantage energy efficiency and renewables; consideration of risks such as fuel-price increases, new environmental regulation, and changing load growth; consideration of distributed and stand-alone systems to meet customer loads; and giving intermittent solar and wind resources fair credit for their contribution to utility system reliability.

Title: "The Next Texas Energy Boom"
Price: $10
Publication Code: PEX