Doug Sheridan: US Power Markets Have A Problem--There Isn't Enogh Predictable Revenue To Support Renewables And New Gas-Fired Generation Needed to Back Them Up and Service Surging 24/7 Data Centers

America’s power sector needs durable rules—not shifting giveaways

Doug Sheridan writes succinct, powerful thought pieces on LinkedIn. In this piece, he lays out a key problem facing ERCOT and all US power grids: heavily subsidized wind and solar have pushed many natural gas generators to the back of the line, where they are forced to wait until the wind stops blowing and the sun stops shining before they are paid to generate electricity. Even when they sell their power to the grid, they are paid below operating cost rates due to wind and solar subsidies. Many natural gas generators have shut down as a result, and new projects are not being built.

While the OBBBA (One Big Beautiful Bill Act), recently passed by Congress and signed by President Trump, restricts new wind and solar subsidies in a few years, it does not address the immediate problem of declining natural gas generation. ERCOT and other grids have seen many new proposed natural gas generation projects cancelled. This problem must be addressed immediately to meet the surging demand for 24/7 data centers.

Sheridan asks the key question: Are politicians up to the task of aggressively reducing or eliminating the subsidies being paid to wind and solar?

US power markets have a problem—there simply isn’t enough predictable revenue to support both renewables and the new gas-fired generation needed to both back them up and service surging 24/7 data-center demand.

You see, power developers don’t just blindly build assets. They perform detailed calcs of a project’s expected-value—the probability-weighted net present value (NPV) of construction costs, operating expenses and future revenues. And growing uncertainties in these calcs for gas-fired plants are carving large chunks off of expected values.

For decades, investors in power assets relied on stable ground rules—ie, tariffs set in advance, grandfathered protections, predictable interconnection queues, etc. However, since the Inflation Reduction Act passed on a party-line vote in 2022, those rules have become political footballs... with the IRA pushing subsidized renewables to the head of the revenue line, shrinking what’s left for gas-fired plants.

Nowhere is the problem more glaring than on the main grid in Texas. ERCOT now hosts 87 GW of subsidized wind and solar on a system with an all-time peak demand under 90 GW. NERC says the overbuild has yielded an unheard-of on-peak reserve margin north of 40%. In a rational market, new supply additions would cease. Instead, over 370 GW of renewables and batteries sit in ERCOT’s interconnection queue—more than ten times all other resource types combined.

The glut of renewables on ERCOT has forced even relatively young gas-fired plants to the back of the revenue queue. Many plants now must accept revenues barely enough to cover operating costs, let alone repay debt. Left to subsist on table scraps, these plants now face early retirement or mothballing.

The crux of the problem is political. The IRA’s tax credits passed without a single GOP vote. That made them ripe for repeal when Republicans reclaimed the majority. And that’s exactly what's happened. Democrats in turn can be expected to reinstate the credits the next time they gain control of the gov't. And so on. The prospect of such endless flip-flopping shrinks the perceived economic pie for new gas-fired generation.

The upshot is that, going forward, rational investors will build new gas-fired capacity only if one of two things happens. Either their projects secure long-term, creditworthy power-purchase agreements (PPAs) that transfer the risks to buyers... or wholesale prices climb high enough to allow projects to pay out despite depressed volumes.

Political swing-sets operating on US power grids are eroding investor confidence, raising costs and delaying the buildout of the generation America needs. Until politicians enact stable, bipartisan energy legislation—or wholesale prices surge—many developers of on-grid gas-fired plants will sit on the sidelines.

America’s power sector needs durable rules—not shifting giveaways—to ensure the economic pie is sufficiently enticing. Are politicians up to the task?

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