Proposition 7 – Construction and Modernization of Reliable Energy Resources Coming To Texas

Texas has come a long way in transforming its energy landscape over the past two decades. The Lone Star State began significantly expanding its renewable energy generation capacities in the early 2000s, aiming to harness its abundant solar and wind resources. This has allowed Texas to become a leader in wind energy, producing over a quarter of the nation’s wind power generation today.

However, the severe winter storms of 2021 and 2022 stress-tested the state’s energy infrastructure, revealing vulnerabilities in power generation and transmission. These reliability issues prompted policymakers to pass Proposition 7, allocating $10 billion to modernize energy facilities focused on dispatchable power like natural gas.

While renewable sources currently make up a sizable portion of Texas’s power generation mix, baseload generation from fossil fuels remains crucial to balance supply with demand. Natural gas plants, in particular, often ramp up or down to compensate for the variability of renewables that occurs when the sun is not shining and the wind is not blowing. Proposition 7 aims to stimulate these natural gas-based power generation upgrades and capacity additions to keep pace with the state’s rapidly growing energy needs.

Overview of Texas’s Renewable Power Generation Growth

Texas began investing heavily in renewable energy integration in the early 2000’s, to take advantage of abundant wind and solar resources across the state. By 2009, Texas had already exceeded its initial 2025 target of 10,000 megawatts of renewable energy capacity, mostly from rapidly growing wind farms. As of early 2023, installed wind capacity soared to almost 40,000 megawatts, and utility-scale solar approached 14,000 megawatts. Together, these renewable sources now make up over 25% of the state’s power generation mix.

While the swell of renewables has supported Texas’s electricity demands amid population and economic growth, it has also introduced reliability concerns around intermittency. The severe winter storms of 2021, including Winter Storm Uri, and the winter storms of early 2022 strongly exposed these vulnerabilities.

During the peak cold crisis, some of the state’s wind turbines froze, and solar resources were significantly degraded for days. This underscored how vital base natural gas generation, as well as natural gas peaking generation, remains to complement renewables. However, some natural gas power generation infrastructure also failed in the extreme weather as equipment froze,  and power plants tripped offline. Coal and nuclear plants further struggled with mechanical issues at the time.

These severe winter events illuminated the need for additional natural gas power generation and infrastructure, as well as the symbiotic relationship between renewables and natural gas, in particular, to meet Texas’s energy needs in a high-functioning, modernized grid. Beyond adding renewable capability, investing in weatherization and reliability of gas and storage assets is crucial. The fallout also prompted urgency around market incentives for dispatchable base load power and greater coordination between resources. Achieving an optimal power generation and transmission system is a core focus of Texas’s evolving energy growth and reliability efforts in the 2020s.

Background of Proposition 7

Proposition 7, or Prop 7, is a Texas ballot referendum that voters approved in the November 2023 elections. Essentially, the goal of Prop 7 is to modernize power infrastructure and improve electricity reliability across the state. It specifically allocates $10 billion towards loans and grants to bolster natural gas, coal, nuclear, and other dispatchable generating facilities and related transmission projects, and we will outline the referendum more thoroughly in the following paragraphs.

2021 Winter Storm Uri and Winter Storms of 2022

This landmark policy stems directly from the catastrophic grid failures that left millions of Texans without power during the winter storms of February 2021. As discussed here, these events exposed fragility in both renewable resources and legacy fossil fuel systems to extreme cold. Proponents of Prop 7 argued that subsidizing more dependable capacity, like advanced natural gas power plants, would prevent another energy crisis. Voters agreed by a solid margin, with Prop 7 passing by about 65% to 35%, according to exit polls.

The effects of Prop 7 funding will be two-fold. In the short term, upgrading natural gas and nuclear plants with the latest technologies will increase output, efficiency, and severe weather readiness. Equally impactful is spurring the development of cutting-edge facilities across generation, storage, and delivery. This includes small modular nuclear reactors, hydrogen peakers, microgrids, and pipelines.

Over the longer horizon, Prop 7 lays the financial groundwork to keep Texas at the forefront of energy deliverability, readiness, and reliability. Maintaining this critical infrastructure is vital as population growth intensifies electricity demand.

The Plan

The centerpiece of Proposition 7 is the Texas Energy Fund, which will contain $10 billion allocated from state coffers. This fund is now enshrined in the Texas Constitution following overwhelming voter approval. The Public Utility Commission of Texas (PUCT) will oversee disbursements from the fund in the form of grants and loans for eligible generation projects.

Under the plan, $7.2 billion has been earmarked for loans to existing power plant owners seeking to upgrade facilities that supply the main ERCOT grid. Improvements must boost capacity by at least 100 megawatts per plant. New construction loans are also available for plants with a capacity exceeding 100 megawatts. In both cases, priority will go to natural gas, coal, and nuclear projects featuring the latest technologies to amplify efficiency, output, and resilience.

The remaining monies are split between $1.8 billion in grants for backup power and microgrids at critical infrastructure sites across Texas and $1 billion for rural grid modernization loans in areas beyond ERCOT. Energy storage installations are noticeably absent from the fund’s scope.

The PUCT will begin accepting proposals in June 2024. Approvals and completed upgrades of current plants are projected within 1-2 years. New build facilities would likely come online from 2026 onward, depending on permitting and construction timetables of around four years. Ongoing applications to the fund can sustain these development initiatives over the next decade.

Planned Impacts for Texas Residents

In the near term, upgrading existing power plants and providing backup power to critical infrastructure with Prop 7 funding will bolster electricity reliability across grids state-wide. Preventing failures that could leave millions in the dark, or the cold, remains the top priority.

Longer-term reliability gains will come as new natural gas, nuclear, and other fossil fuel plants are constructed over the next 5-10 years. Crucially, these will feature innovative technologies such as carbon capture, hydrogen integration, and weatherization packages suited for Texas’s extreme climate. The goal is to usher in a new generation of zero-emission base load plants that can complement growing renewable buildouts.

Economics and Taxes

Prop 7 projects will exert downward pressure on wholesale electricity prices by increasing capacity margins. However, customer bills are still governed by complex formulas balancing fixed costs. There may be a psychological comfort from grid stability. No near-term tax hikes are expected, with the state on solid fiscal footing.

Future Planning

Managing Texas’s surging power appetite will remain an evolving challenge. According to the Texas Demographic Center, the Texas population is forecasted to increase by almost 60% by 2050, bringing a need for extensive power generation capacity, infrastructure capacity, and a need to address more intensive peak demand periods. Pricing signals may better incentivize conservation, while new building codes will emphasize efficiency. Keeping generation, storage, and delivery capacity ahead of demand curves is integral to properly provide for our growth.

Our Future

The road ahead seems bright for Texas energy, thanks to the visionary investments enacted under Proposition 7. Approving over $10 billion to bolster electricity capacity and reliability was a resounding statement that Texans expect better from their power grids after the experiences of recent blackout crises.

Upgrading and replacing aging fossil fuel generators will provide crucial short-term relief. But the true fruits of modernization will blossom over the next decade as cutting-edge facilities come online.

Meeting the energy appetites of Texas’s swelling population and economy sustainably and reliably is no small order. But with smart long-term planning, plus flexibility to integrate further innovations not yet foreseen, Texans can feel confident the Lone Star State’s grids will stay brightly lit no matter the weather extremes ahead.

Ending FAQs

Why was Proposition 7 created, and how does it impact Texas?

Proposition 7 was created to address the growing need for a more resilient and diversified energy infrastructure in Texas. It represents a significant shift in the state’s approach to energy, focusing on modernizing the existing system to enhance reliability and integrate renewable energy sources. The impact of Proposition 7 on Texas is multifaceted. It leads to a more stable and sustainable energy supply, mitigates the effects associated with extreme weather conditions, and supports the state’s economic growth by stimulating job creation in the energy sector. By fostering energy innovation, it also positions Texas as a leader in the national and global energy landscape.

How will future projects resulting from Proposition 7 affect Texas’s energy reliability?

Future projects under Proposition 7 are expected to greatly improve Texas’s energy reliability. These projects include upgrading existing energy generation facilities, enhancing natural gas infrastructure, and integrating more renewable energy sources like wind and solar power. The modernization of the energy grid will ensure that Texas can meet its current and future energy demands more effectively, reduce the likelihood of power outages, and provide a consistent energy supply, particularly during peak demand periods and extreme weather events.

What future energy projects are planned under Texas’s modernization initiative, and how long will they take to implement?

Texas’s modernization initiative under the ERCOT 2040 Roadmap includes significant enhancements to the state’s electricity infrastructure. The plan encompasses the construction of approximately 1350 miles of new transmission capacity to facilitate the movement of around 40,000 MW of power. This expansion is aimed at better connecting the West and Central parts of Texas, as well as improving connections to border areas experiencing high load growth and congestion. Additionally, the initiative will deploy about 130 GW of new capacity across wind, solar, natural gas, and energy storage, helping to meet the growing electricity demands of an additional 12 million Texans by 2040. The project, which is expected to yield significant production cost savings and local economic benefits, reflects a broader shift towards an optimized, cleaner, and more efficient energy grid in Texas.