Paying the Price for Renewables (Georgetown, TX power surplus generates cost deficits)

“Georgetown is paying dearly for its surplus energy. With annual demand growing at roughly 3% per year, it could be 15+ years before the City’s consumption begins to match its contracted supply.”

“Accepting accolades for signing long-term contracts is easy. Now Georgetown consumers deserve honest answers about what to expect in the coming years.”

Georgetown, Texas, just 30-miles north of Austin, earned international acclaim after announcing its transition to a 100% renewable energy portfolio. Since mid-2018, all electricity consumed by the City, its residents and businesses, is sourced from a combination of wind and solar plants operating in the state. Georgetown Mayor Dale Ross, a CPA, touted the decision as a “no-brainer” grounded in economics and long-term strategic planning. For Ross, wind and solar were cheaper, more reliable, and the way of the future.

The shift to renewables put Georgetown on the green energy map and raised Mayor Ross’ public profile leading to national media interviews and a coveted spot in Al Gore’s sequel to “An Inconvenient Truth.” Plaudits aside, Georgetown ratepayers were promised measureable reductions in their power expenses. The City’s 2016 annual budget anticipated an overall 10.8% decrease in electric utility expenses from the prior year’s projections owing largely to renewables.

But now that Georgetown is ‘running’ on wind and solar, its officials are facing a harsh reality.

Actual power purchases for 2016 were 22% over budget coming in at $42.6 million against an expected cost of $35 million. In 2017, costs surged again to $52.5 million and all indications are Georgetown electricity customers will take another bath this year. (See table 2)

What Went Wrong?

To achieve 100% renewables, Georgetown negotiated two long-term (20+ year), fixed-price power contracts, one with EDF Renewables’ 194 MW Spinning Spur 3 wind plant beginning January 2016 and the second with NRG’s 154 MW Buckthorn solar site, effective July 2018. Details on pricing were withheld citing business confidential, but the contracts are for 144 MW of wind and 150 MW of solar for a combined annual quantity of nearly 900,000 MWh.[1]

This is against Georgetown’s average annual consumption of about 575,000 MWh with a peak of 145 MW.

Table 1

Since wind typically produces out-of-sync with demand, Spinning Spur likely generated more electricity than Georgetown could consume in most hours of the year, leaving the City with little choice but to sell the surplus into the real-time market, usually at prices well below the contracted rate, including negative prices. The 2016-17 costs do not reflect the Buckthorn contract which went on the books last July, but the City has already acknowledged its possible impact. Last month, the 2018 power purchase budget was amended upward from $44 million to $52 million.

Table 2

*estimated

There’s no question, Georgetown is paying dearly for its surplus energy. With annual demand growing at roughly 3% per year, it could be 15+ years before the City’s consumption begins to match its contracted supply.

Surpluses Expected, Now What?

Remarkably, officials knew they were agreeing to purchase more energy than could be consumed and saw the move as a benefit. An FAQ posted on Georgetown’s website states:

Georgetown expects to generate almost twice the power it needs from the wind and solar plants in the early years of the contracts. For the next 20 years as Georgetown grows, the wind and solar plants will continue to produce more renewable power than we consume. Georgetown will sell off the excess power into the ERCOT market.

If the City planned for surpluses and expected them to deliver cost reductions, what happened?

The only clue we have is in the City manager’s 2019 budget presentation that states

Purchased power expenses are 7% higher due to excess generation being sold into a depressed wholesale market and milder weather conditions.[2]

In other words, the forecast models used to justify the purchases assumed much higher market energy prices relative to their fixed contract rates. The City hoped for a positive revenue stream from the sale of excess renewable energy when, in fact, it was a crushing loss.

It’s no secret that renewable energy is flooding the Texas power market and depressing prices, especially during off-peak, off-season periods. ERCOT regularly reports real-time energy prices so the information was there for the City and everyone else to see. Power contracts and federal subsidies further encourage drops as wind and solar resources become immune to market signals and can afford to generate even when prices go negative.

Accepting accolades for signing long-term contracts is easy. Now Georgetown consumers deserve honest answers about what to expect in the coming years. Mayor Ross pining for a sudden, sustained spike in Texas’ energy prices is not enough.

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[1] EIA shows the annual production of Spinning Spur 3 in the years 2016 and 2017 as 814,372 MWhs and 811,104 MWhs respectively giving it a 48% capacity factor. Georgetown is contracted to acquire just over 600,000 MWh. Since Buckthorn solar was not placed in service until mid-2018, RE Roserock solar plant was used as a proxy to estimate production since it is similarly situated in Texas. Roserock produced at a 21.3% capacity factor. Using the same capacity factor, Buckthorn is expected to produce about 280,000 MWh per year.

[2] Similar wording also appears in the 2018 budget report