Lessons of Wind Policies in Texas

Since the late 1990s, Texas has experienced more wind generator investment than any other U.S. state. It now has the most installed wind capacity of any state, and wind power accounts for a larger share of total generation in Texas than in most other states. Favorable wind resources and the relative ease of siting large projects have contributed to Texas’s prominence in wind investment and generation. Numerous policies have also played important roles, such as the federal tax credit for wind generation, the state’s renewable portfolio standard (“RPS”), and a regulatory environment conducive to new investment in the electric power sector. With nearly fifteen years of hindsight, the Authors derive lessons from the major federal and state policies that have helped wind generation in Texas. The Authors conduct this retrospective analysis at a time when many other states have ambitious renewable energy resource requirements; for example, California requires that renewables account for 33% of generation by 2020.5 At the same time, extensive debate over federal policy continues, including whether to continue or renew subsidies to renewables. The lessons from the Texas experience can help guide these future policy decisions. To provide background, the next Section summarizes aggregate trends in investment and generation in Texas and considers these trends in the national context. The Authors also briefly describe the federal production tax credit (“PTC”), which has been claimed for many recent wind power projects, and the Texas RPS. Texas also has a “green power” market that creates market-based incentives for investment in renewables; however, the Authors are not aware of any detailed analysis of this program, so the Authors focus on the RPS. The Authors discussion includes the policies that encourage renewables investment directly and reduce pollution emissions, leaving aside other policy developments such as the deregulation of the electricity sector that occurred during the same time period. The following Section looks at the economics of wind power, and distinguishes the market and environmental values of new wind generators. Market value arises from displaced generation and investment resulting from the new wind generator, and the environmental value from the avoided pollution emissions from fossil-fuel-fired generators. Because the Authors focus on policies that aim to reduce pollution emissions, the Authors do not include other environmental issues such as the effects of the policies on bird populations. In the main Section, the Authors draw three policy lessons from the discussion of market and environmental values. While several other articles have analyzed wind policy in Texas, the Authors’ focus is distinct in its attempt to draw important lessons for state and federal efforts to promote renewables. Briefly, the three lessons are as follows: In Texas, the environmental benefits of wind power arise primarily from displaced natural gas generation and to a lesser extent from displaced coal generation. Although existing Texas policies have promoted substantial wind investment, other policies would likely reduce pollution emissions at lower costs. Coordinating policies for renewables and grid infrastructure can greatly lower the cost of reducing emissions. The final Section offers a few concluding remarks for state and federal policy.