Texas is a big place. The state stretches from flat, piney woods on the border with Louisiana to mountains and desert in the west, and can take two full days to drive across. It was the largest U.S. state until Alaska, and has the second-largest population at over 27 million residents. Much of Texas is arid, especially West Texas and the Panhandle region, which crosses the Red River towards Oklahoma, and is sparsely populated. As such, it offers excellent natural conditions for solar, and cheap land. But Texas has not been as big of a solar market as these conditions would suggest. To date much of the solar built in the U.S. has been under renewable energy mandates, and Texas’ weak renewable portfolio standard (RPS) was filled three times over with wind in the last decade.

But all of this is about to change. In the Lone Star State 1.26 GW DC of PV is under construction, and GTM Research expects that 4.6 GW will be installed through 2020, to make Texas the second-largest solar market in the U.S.

The Texas wind boom

The dry prairies of Texas have made a lot of people rich in the last 150 years, first in cattle and later in oil and gas. And while these two industries never left, the state’s most recent resource boom was wind power. Texas hosts the largest capacity of wind turbines in the U.S., with 17.7 GW at the end of 2015.

Texas’ wind boom started in the first decade of the 21st century, with developers finding strong winds in West Texas, and cheap land to put turbines on. They also found a regulatory environment that was easy to navigate and strongly in favor of development. Among those who discovered the potential of wind in Texas was hedge fund manager and oil magnate T. Boone Pickens, whose “Pickens Plan” was the most well-known articulation of Texas’ embrace of wind energy. This was particularly notable as Pickens is a champion of right-wing causes, and at the time many “conservatives” were hostile to renewables.

But as Texas installed gigawatts of wind across the western half of the state, available transmission quickly filled up. In 2009 the state curtailed 17% of its wind production, as it was unable to get this power to demand in cities in the central and eastern parts of the state. Texas’ government saw this coming, and as early as 2005 had passed legislation that sought to identify key locations in West Texas for wind development, and to build transmission from these regions to the east. By February 2014, developers had built 18.5 GW of transmission from the state’s Competitive Renewable Energy Zones (CREZs) to the San Antonio, Austin and Dallas/Ft. Worth metro areas.

And in a notable move for a state dominated by the Republican Party and “free market” political ideology, Texas socialized the cost of this transmission, spreading the cost among utilities in the state who then passed the costs on to ratepayers. This is similar to the mechanism used by nations such as Germany to cover payments to renewable energy generators through FITs, and shielded wind developers from the high costs of paying for transmission themselves.

ERCOT

After fighting to win independence from Mexico in 1836, Texans initially tried to form their own nation, complete with their own flag. While this proved impractical, this instinct towards autonomy continued in electricity.

Texas has its own grid, which is not interconnected to the two other main grids in the U.S. The Electricity Reliability Council of Texas (ERCOT) manages this grid, and must balance supply and demand within its borders, which covers 85% of the state by area. ERCOT is overseen by Texas regulators, and as part of its autonomy the state has different power markets than those in other parts of the country, with both advantages and disadvantages for renewable energy.

One of the more significant details is that Texas’ electricity market was “deregulated” in 2002, and as part of this utilities are barred from owning generation and must procure electricity from power producers who compete in the wholesale market.

This is great for zero-marginal cost resources like solar and wind, and can also mean very high power prices during periods of peak demand.

And while the market is deregulated, a large number of Texas utilities are under public control. Two of the state’s larger cities, Austin and San Antonio, have municipal utilities, with San Antonio’s CPS Energy serving as the largest municipal utility in the nation, offering both gas and electric service to over 765,000 electric customers. Additionally, Texas has 67 electricity cooperatives serving over two million rural and suburban customers, and covering most of the state’s land area.

The early days

As a state where the South meets the Southwest, Texas is culturally different than the states that have led solar development to date. Unlike California and some states in on the East Coast, Texas’ political decisions have not been strongly influenced by environmental concerns.

In 1999 Texas implemented a renewable portfolio standard, but its relatively weak mandate that only 5,000 MW of new renewable energy be installed by 2015 means that the program has been more than three times oversubscribed with wind. Additionally, a carve out for 500 MW of non-wind capacity is voluntary, with no penalty for non-participation.

In the absence of a strong environmental mandate, Texas’ wind boom appears to be driven by a confluence of various economic interests. As solar in the past has been more expensive there has not been a similar consensus to drive this market. Distributed solar has also been slower to pick up than utility-scale, which is likely a result of a very weak policy support including a lack of mandatory retail-rate net metering.

This lack of interest played out in the numbers. According to GTM Research, Texas’ cumulative installed solar capacity in the first half of 2014 was only 218 MW – a volume smaller than Pennsylvania or New Mexico, and far less than leading solar states like Arizona, Massachusetts or New Jersey, let alone California.

Munis take the lead

The first large-scale solar development in Texas was led by San Antonio’s CPS Energy, which in July 2012 cut a deal backed by Mayor Julián Castro with South Korea’s OCI, under which CPS would agree to buy the electricity from 400 MW of solar that OCI planned to build, in exchange for OCI and its partner Nexolon locating manufacturing in San Antonio.

This deal led to the establishment of Mission Solar Energy, which makes bifacial n-type mono PV modules at its new facility in San Antonio. The factory has the capacity to produce 200 MW of modules annually. Meanwhile, Austin Energy had already contracted with RES for the 30 MW Webberville solar farm, and in May 2014 followed this and CPS’ lead xAdvertisementby contracting with Recurrent Energy to build a 150 MW project. As the capital of the state with a strong technology industry, large university and well-educated population, Austin is politically and culturally different than the rest of Texas. Concerns over climate change were openly cited as factors in the city’s policies around renewable energy.

In April 2014 the Austin City Council passed a resolution calling for the city to reach zero community-wide greenhouse gas emissions by 2050 or sooner, and this was followed by a Climate Protection Plan in June 2015 that included a goal to procure 200 MW of solar.

Once Austin City Council started approving solar, it had a hard time stopping. In October 2015 it approved another 450 MW of PPAs for projects in West Texas, which came in under $40/MWh.

Austin and San Antonio have been joined by municipal utilities in Georgetown and Garland, which are building smaller projects. The result is that between these four municipal utilities and a 40 MW contracted by the City of Houston, Texas’ cities have just under 1.5 GW of solar PV under contract, around 3/4 of the 2 GW that is currently contracted in the state.

Raw economics

Even in the rare places like Austin with environmental mandates, the large volume of solar PV being procured in Texas is driven by economics as well. At below $40 per megawatt hour, these economics have become very good in the last few years.

West Texas and the Panhandle, where many of these plants are being built, have excellent solar radiation, which drives high output. Another factor is the close match between solar PV output and high summer peak electricity prices, which are driven by Texas’ intense heat and widespread use of air conditioning, compounded by an inability to import electricity from other states.

Doyle Beneby, who was CEO of CPS Energy at the time of the OCI deal, has been outspoken about the potential of solar to bring down high peak power prices during summer afternoons, and GTM Research has also commented on this. “Generally speaking solar lines up very well with peak demand in Texas,” GTM Research Utility Solar Analyst Colin Smith told pv magazine .

In addition to raw price considerations, there is the hedging effect. Solar contract prices compete with wholesale generation, where marginal prices are largely driven by gas-fired generation and, thus, gas prices. And while the price of gas has been low for the past few years, historically it has fluctuated wildly. Solar contracts have the advantage of a fixed price, which can serve as a hedge against this volatility.

These economic factors are driving not only utilities to sign contracts, but also numerous corporations with a presence in the state.

Finally, Texas has seen some of the only solar projects anywhere in the world to sell directly into the wholesale market, without a power contract. First Solar originally built its 18 MW Barilla project on a merchant basis, but with the option of taking on power purchase agreements, and Lincoln Clean Energy is also developing a merchant project in Texas.

Bright future

In July, GTM Research estimated that Texas had 1.26 GW of solar projects under construction. As impressive as that number is, it pales before what is expected to come. Last October ERCOT predicted that the state would install 13 GW of PV by 2030, even without implementation of the Obama Administration’s Clean Power Plan. This was followed by a similar forecast by Brattle Group. GTM Research also expects a boom, and for Texas to become the nation’s second-largest solar market in the next few years, installing 4.6 GW through 2020. The large majority of this is expected to be utility-scale. While such predictions may seem optimistic, it is important to remember that if built in the CREZs such projects will be able to access the substantial transmission that has been built, at no cost. And while there is a lot of wind on this transmission already, wind in these regions often blows at night, meaning limited competition with solar.

While this boom was started by municipal utilities, GTM Research expects other actors to play a larger role in the next few years. “I think a larger portion is going to be retail procurement by corporate users,” states Smith. “Another one that is taking on a bigger role is electric cooperatives.” As a potential foreshadowing of a larger role, in April one of the state’s largest co-ops, Pedernales Electric Cooperative, contracted to have RES Americas build up to 15 MW of PV projects at sites owned by cooperative members. Smith does not predict a big increase in merchant solar in the near term, stating that the economics are “not quite there yet.” However, he notes that contract prices are expected to fall. “I would be shocked if any new contracts are signed above $45,” he said. “We are seeing a real decrease in competitive PPA pricing.” And while utility-scale solar is set to boom, distributed generation (DG) is not as much of a success story. Of the 723 MW that GTM Research estimates has been built in the first seven months of 2016, less than 10% was DG, and the company expects these trends to continue over the next five years.

But with enormous demand, excellent natural solar condition, cheap land and free transmission, the sky is the limit for utility-scale solar in Texas. As many have noticed, that sky is big.