Austin Energy Argues Gas an Unfortunate Necessity

The 2024 update of Austin Energy’s carbon zero plan to 2035 was marked by a sense of urgency to meet skyrocketing demand on the statewide ERCOT grid, the specter of another Winter Storm Uri, and the need to reaffirm to the public that the city is on track to reach its climate goals, with a little less than a decade to go. AE is a leader in carbon-free generation at more than 70% compared to ERCOT’s 40%, and since passing the resource plan, they’ve added $871.5 million of renewable and battery projects, even surpassing one 2027 goal. But retiring carbon-emitting resources comes at a cost – 725 megawatts of local generation to be exact. And with ERCOT estimating (dubiously) that energy demand will quadruple by 2032, AE says it will need all the power it can get – including more gas generation.

On Thursday, AE will ask City Council to approve building 400 megawatts of gas capacity, 100 MW of battery storage, and 299 MW of wind power locally. The Electric Utility Commission met last week to discuss the plan to greenlight an estimated $1 billion in gas “peaker” units. “This is one of the most difficult things I’ve ever faced here,” Chair Dave Tuttle said. “We don’t really want to do this, but is it something that is just prudent for the community?”

Ultimately, the measure passed 8-3 with most commissioners convinced of AE’s arguments. “The key risks in the 2035 plan have increased,” explained Lisa Martin, chief operating officer at Austin Energy. “If the amount of power our customers need is higher than the amount of power we can bring in, plus [what] we can generate locally, then we risk having local power outages while the rest of Texas has no issue.” In AE’s modeling, peakers reduce that risk by 90%. 

Peakers have “black start” capability – they’re able to power up from zero during a blackout without relying on the statewide grid. They’d operate in case of emergency only, as a last resort after deploying renewables. Their emissions controls are much better than the 1970s-era Decker Creek and 2000s-era Sand Hill plants, and they’d run first, meaning AE could possibly shut down the older plants sooner, proving to ERCOT they no longer need them.

“Think of peakers as essential insurance,” Martin explained to the EUC. 

By producing more energy locally, Austin won’t have to import as much energy from elsewhere through congested transmission lines at peak times, and could use that money saved to invest in more renewable energy sources. Peakers could be up and running by 2030 – earlier than additional transmission lines – and, Martin argued, they offer reliability that renewables and four-hour batteries simply can’t.

“We can’t afford not to.”

Stuart Reilly, general manager at AE, on approving increased gas capacity

Commissioner Cyrus Reed questioned AE’s analysis that peakers are 90% more effective at reducing blackout risk than batteries, saying that during the resource plan update process, the numbers seemed more equal. “This is a huge decision,” urged Reed. “I’m troubled by the wide open nature of [it].” Martin responded that demand on the grid has grown so much in the 16 months since the resource plan update that the risk of blackouts has soared past batteries’ capabilities.

EUC Commissioner Kaiba White’s nonprofit Public Citizen is urging Austinites to oppose the resolution, arguing that the process isn’t transparent enough, as the proposal doesn’t specify the exact cost, the companies involved, or the exact location of the project. Stuart Reilly, general manager at AE, explained that this information can’t be made public because peakers are a “sellers’ market”, and AE has to be more delicate with what is communicated publicly about competitive matters.

Public Citizen argues that AE should instead pursue long-duration battery storage. But in the Austin Energy Utility Oversight Committee meeting on Tuesday, Martin explained that “for an eight-hour battery to be economical, it has to find enough hours in the market where it can charge at really low prices and discharge at high prices to generate a net revenue to offset the cost … for usage of that battery.” And in the volatile energy market, prices change fast.

The cost of peakers is high, but Reilly urged Council members to consider that they provide more financial benefit than batteries alone, as well as longer-term reliability. “If another Winter Storm Uri comes around, it can protect our customers from hundreds of millions of dollars of risk,” said Reilly. “We can’t afford not to.”

Financial risk aside, the elephant in the room is AE’s goal to be carbon-free by 2035 – one would think adding gas generation would throw a wrench in that. But Martin argues that “peakers don’t hurt the goal,” she said. “I anticipate peakers are actually going to help.”

If AE has more local generation, it won’t have to buy as much energy from the ERCOT market (which is about 50% fossil fuels) – and it won’t have to run its only coal-producing plant, Fayette Power Project, as often or at all. “We may actually have more control because we will be purchasing something that’s better for the climate instead of having a wing and a prayer for LCRA to realize ‘We wanna be like Austin Energy,’” Mayor Kirk Watson pointed out at the AEUOC meeting. “Some people think there’s a perfect [solution],” said Watson. “And there ain’t.”

“We have to decide as policymakers what is the bound of the policies we set? Are we gonna look at our portfolio or the ERCOT portfolio?” asked CM Ryan Alter, urging other CMs to think globally about emissions. “And there are situations where if we turn ours off, the next one is dirtier and less efficient.” CM Vela added, “We’re importing it when it’s as expensive as it’s gonna be.”

Reilly reminded Council that having more local generation capacity to sell into the ERCOT market makes AE more able to buy renewable resources at a lower cost, putting Austin closer to reaching its 2035 goal. “The goal is to have enough carbon-free resources to cover 100% of our customers’ load – that doesn’t mean the same thing as not having any carbon-emitting resources, because there currently is no replacement that could meet that need from a reliability perspective. That’s just how the ERCOT grid works,” said Reilly. 

“We need everything we have now,” Martin explained, “everything we’re proposing, and then we’re gonna need more.”

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