Texas Senate passes bill to upend energy market, spur gas over renewables

Texas legislators have a new plan for their state’s famously competitive energy market, and it looks a lot like the government picking winners and losers.

On Wednesday, the Texas Senate passed SB 388, which would set a target for 50% of new power plant capacity to be ​“sourced from dispatchable generation other than battery energy storage.” An earlier version of the bill mandated that these plants ​“use natural gas.” Power plant owners and utilities that don’t invest their money according to this political directive would have to buy credits to comply with the new regulatory bureaucracy, raising the cost of doing business in the ERCOT energy markets.

If passed by the House and signed by Republican Gov. Greg Abbott, the bill effectively would penalize renewables and reward a subset of dispatchable generators that politicians in Austin favor. Such a policy would upend the competitive system that has ruled ERCOT for two decades, one that empowers investors to build whatever power plants they think the market will reward. This design has made Texas a favorite place to do business for power plant developers, and unleashed innovative technologies and business models that are held back in other states by utility monopolies and restrictive regulations.

SB 388 could be particularly impactful because Texas has established itself as the most dynamic clean energy market in the country. Renewables and battery developers have thrived thanks to the wide-open competitive energy market, abundant land, relatively easy permitting requirements, and the nation’s fastest timelines to interconnect projects to the grid. Texas is building more solar and battery capacity today than any other state, California included; on average, developers have connected about 1 gigawatt of new solar and batteries to the grid each month for the last year, noted Austin-based energy analyst Doug Lewin.

That rapid pace of construction has already mitigated power shortages during heat waves last summer, reducing the kind of price spikes that consumers were subjected to in previous years. And building power plants quickly is exactly what the U.S. needs to keep pace with surging demand from domestic industry and AI computing.

Lewin didn’t mince words about the potential fallout from the gas-generation mandate and other proposed restrictions on clean energy in Texas: ​“The Texas Senate is the biggest threat to U.S. energy security,” he wrote in his Texas Energy and Power Newsletter last week.

Fossil gas remains the largest source of electricity generation nationwide, but it has slipped to just 7% of new capacity expected to come online in 2025, according to the Energy Information Administration. Solar, batteries, and wind will deliver 93% of new gigawatts built this year. This trend is particularly evident in Texas: The queue of projects awaiting connection to the ERCOT grid skews vastly toward batteries and solar, with just a sliver of new gas. That dynamic persisted even after Texas legislators, in their 2023 session, earmarked taxpayer dollars for a multi-billion-dollar loan fund to help private gas plant developers.

Part of the problem for gas plant owners is that renewables are producing more megawatt-hours cheaply, driving down the returns that gas plants make during hours that solar and wind produce a lot of energy. Texas gas plants looked to the peak summer hours to boost their profits for the year, but now solar and batteries are cutting into those hours, too.

The challenges go beyond ERCOT’s market competition. While solar panels and batteries benefit from mass production, gas turbines are highly specialized, complex machines made by a limited number of key suppliers. Those manufacturers have warned of five-year backlogs for the equipment. Even if private developers wanted to overhaul their investment strategies based on the central directive from Austin, they’d have trouble finding the tools needed to comply.

Without hope of hitting the 50% threshold that kicks in in 2026, developers would have to buy ​“dispatchable generation credits” (previously drafted as ​“natural gas energy credits”). Fees incurred by this new regulatory scheme would pass through to customers in the form of higher energy bills. But the current legislative text has no details on just how expensive these credits would be, handing off the specifics to state regulators to decide.

The Senate did moderate its stance as the bill advanced. Changing the language from explicitly privileging gas to ​“dispatchable generation” theoretically welcomes coal and nuclear plants to the party, not that any new coal or nuclear plants are getting built in Texas — or elsewhere in the U.S. — any time soon.

Senators also carved out a reprieve for pure-play battery operators, implicitly recognizing the role batteries have assumed in dispatching power on demand when the market needs it most.

“A power generation company that exclusively operates battery energy storage resources is not required to purchase dispatchable generation credits under this section,” the amended text notes.

Now the House will get to weigh in, as will the business community that has grown accustomed to buying power from competitive markets, without having to consider the preferences of elected officials. It’s unclear whether the governor would sign the bill if given the chance. Revamping ERCOT was not among the ​“emergency items” Abbott prioritized in his February State of the State address; instead, he listed several education policies, lowering property taxes, and investing in water infrastructure. He did signal an interest in encouraging nuclear plant construction.