A Bridge to West Texas

Thayer Adsit
Jul 30, 2017 · 4 min read

West Texas is sparsely populated and far removed from the hustle and bustle of Austin, Dallas, San Antonio, and Houston, but is home to the wind resources which these major cities will depend on. A massive $7 billion dollar transmission investment in 2013 bridged West Texas to population allowing 18.5 GW of electricity to flow. This major investment and further investments by transmission companies are being progressed to ensure a guaranteed market for new wind projects. The transmission lines are a win for the environment and are a win for the wind power companies.

In 2013, West Texas (LZ_WEST) experienced the lowest average prices (equal to the “Heat Rate” multiplied by the price of natural gas) when the non-wind power was minimum because power could not be exported, creating a local surplus. The area also experienced the highest power prices when non-wind power generation was high because it could not import power from the eastern sections of the state. As the transmission projects came online, West Texas surrendered their wind power advantage, but also eliminated their disadvantage during high demand periods:

The question for West Texas consumers is which impact was greater. An analysis of the grid efficiencies indicated that there was essentially not a change to the West Texas wholesale price until 2016, when West Texas prices became the lowest. The initial transmission lines opened up the market increasing wind power prices. This impact was offset in the west by access to natural gas electricity production in the eastern/central regions that lowered peak prices:

The above graph is surprising in the fact that the average heat rate does not decrease in any region until 2016, despite greater access to wind energy which has zero marginal cost. Further analysis indicated that the West Load Zone heat rate (a price adjusted revenue per megawatt of wind indicator) did not change until 2016:

The line on the above chart represents the average wind production. Increased wind power in 2014 and 2015 did not result in lower revenues per megawatt-hour of wind production because the power was able to be exported from West Texas via the new 18.5 GW transmission lines opened up in 2013. Between 2013 and 2015, wind power producers could install capacity without impacting their revenues. Transmission capacity appeared to become limiting. Without new investment in transmission lines (or batteries), incremental wind power will decrease the profitability of existing wind turbines, lowering the incentive for existing players to further invest. A visualization of how increased wind production impacts the price of wind power is shown below:

There is a downward trend between the amount of wind power and the price received by operators. Part of this is due to the demand profile. To identify where the capacity of the transmission lines were a limiting factor, the data was filtered to where prices in the West load zone were zero, but prices in adjacent load zones were greater than zero. This discrepancy exists for two reasons: inter-hub transmission lines are at capacity or there is an internal transmission/generation upset in the adjacent load zone. Capacity issues are likely indicated by normal prices (efficiencies below 10 MBTU/MWHr). Upsets are indicated by abnormal prices (efficiencies above 10 MBTU/MWHr). The data for 2013 is represented below:

The majority of the cases in 2013, there were limitations in the inter-hub transmission system. The prices in the adjacent load zone (in this case the North load zone) were in the normal range, while the West load zone prices were below zero. Capacity restrictions appear to occur with as little as 4000 MW of wind power on the ERCOT grid. In the years after 2013, there were far fewer instances where inter-hub transmission issues appear to occur.

Transmission capacity issues appear to only occur when total wind output exceeds 9000 MW. Increasing the amount of wind power in the West will push this limit more often. Therefore further investment in transmission lines is necessary to promote investment in wind power. The focus on transmission and grid improvements is essential in the wind power industry.

Written by

Engineer at an international energy firm with experience in project, analyst, and manufacturing roles. Interested in data to unveil truths about energy.

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