The Texas plan to encourage more natural gas power generation is showing cracks

Subsidies for wind and solar are destabilizing the Texas power grid and "Band-Aid policies" will not fix the problem, says ERCOT CEO.

Texas is facing unprecedented growth opportunities in population and industry, partly due to a significant influx of AI data centers and related facilities. Some facilities are currently under construction, and others are rushing to find locations. Why Texas? Texas has a very friendly business climate and a deregulated electricity market that provides some of the cheapest electricity in the U.S.

Unfortunately, the potential industrial extravaganza in Texas is facing a Texas-sized problem: base load electricity generation, mainly coal and natural gas-fired, has been declining, while wind and solar generation has skyrocketed. The proponents of so-called “renewables” continue to push the narrative that they are good for the climate. However, the rapid increase in wind and solar generation has made the Texas grid increasingly unreliable, difficult to manage, and unsuitable for the needs of AI data centers.

The “Houston, we have a problem” moment was Winter Storm Uri in 2021, which caused the grid to be just 4 minutes and 37 seconds from complete collapse. Since then, Texas has continued to experience electricity shortfalls during winter storms and many summer evenings when the sun sets and the wind stops blowing, and available natural gas-fired electricity generation becomes dangerously low. In February 2026, I published a Substack article titled “Texas’s natural gas-fired electricity generation neared a record high in February 2025 winter storm while wind and solar failed again.” The subtitle was “In Texas, natural gas, nuclear and coal provide the base load dispatchable power generation while natural gas provides the peaking: wind and solar cannot provide either.” I discussed this article recently on Global Energy Education TV.

The State of Texas recognizes the problems caused by too much unreliable wind and solar and too little dispatchable natural gas power and has floated many ideas to address them. ERCOT has considered an incentive program called the “performance credit mechanism,” ultimately rejected, and the Texas Energy fund, which guarantees low-interest loans to encourage the construction of more natural gas-fired generating plants.

Texas thought it had solved the grid problem when the Texas Energy Fund was created. Voters approved the $10 billion fund on November 8, 2023, to provide low-interest loan guarantees to companies that agree to construct new natural gas-fired power plants. Seventy-two loan applications were received by the deadline on June 27, 2024, and 17 projects were shortlisted on August 29, 2024, for $5.38 billion in loans, representing almost 10 gigawatts of natural gas-fired generation.

However, some companies that received approval have started dropping out of the program, as captured in the Houston Chronicle headline: “Texas is giving out $5B in loans to build natural gas power plants. Some companies say no thanks.” The article said:

Four companies have pulled their projects from consideration from the $5 billion Texas Energy Fund, citing various financial and logistical challenges. Another project was denied loans last fall after one company listed on the application accused the other sponsoring company of fraud. In total, nearly a third of new project capacity advanced to the fund’s due diligence review process has left the program.

Even before the two most recent withdrawals from the Texas Energy Fund, ERCOT CEO Pablo Vegas told the Houston Chronicle's editorial board that the program was “almost like a Band-Aid. That’s because gas-fired power plant developers aren’t convinced they can make enough long-term revenue in the ERCOT market to build, even with help on their upfront costs, he said (emphasis added).

The Chronicle correctly summarized the problem:

The influx of renewables has depressed wholesale prices, which renewable advocates say have saved Texans tens of billions in electricity costs. But it’s limited revenues for gas-fired power plant developers, who say forward prices don’t give them confidence that new projects will be economic for decades to come (emphasis added).

EIA recently made similar statements:

Electricity demand in Texas typically peaks in the summer during heat waves and in the winter during cold snaps. During peaks in electricity demand, grid operators must have dispatchable electricity generation sources available to service net electricity load, which is the generation required to meet demand after subtracting supply from intermittent sources such as wind and solar.

Surges in electricity demand in the region overseen by the Electric Reliability Council of Texas (ERCOT) are primarily supplied by natural gas-fired generation; ERCOT manages approximately 90% of the electricity load in Texas. In addition to demand surges, natural gas-fired generation rises to meet supply requirements during periods of lower wind and solar generation. In February’s cold snap, demand increased and combined wind and solar generation decreased.

My Take

The crux of the declining dispatchable power problem in the ERCOT grid is the massive influx of “renewables” that has depressed wholesale prices and destabilized the grid. These problems are evident in ERCOT’s current queue for new power generation projects seeking to connect to the grid, consisting of nearly 169 gigawatts of battery storage and 156 gigawatts of solar, compared to 32 gigawatts of gas.

This situation was not created because “renewables” are cheaper. Instead, the problem is that they receive substantial tax advantages: the Production Tax Credit (PTC) for wind and the Investment Tax Credit (ITC) for solar. These tax credits enable them to sell power at very low and even negative prices without being required to provide firm deliveries. As a result, solar power can underbid natural gas generators during daylight hours, and wind power can do so when the wind is blowing.

The result is that wind and solar underbids natural gas generation on most days, so much of it sits idle all day, waiting for the sun to set or the wind to stop blowing. Large, diversified natural gas generators have survived, but small ones have suffered financially and are unwilling to build new generation facilities, even with guaranteed low-interest loans from the Texas Energy Fund.

The simple solution is to repeal the ITC and PTC, but that requires an act of Congress, which may be impossible. ERCOT can circumvent this problem by requiring all generators to commit to guaranteed deliveries with penalties for under-delivery. Wind and solar generators can settle their shortfalls in the day-ahead market by paying for their non-delivery in real time. Requiring guaranteed physical deliveries in the day-ahead market will enable natural gas generators to compete with wind and solar at any time, day or night.

ERCOT and all other power grids must level the playing field to address grid instability caused by wind and solar. Failing to do so will guarantee more brownouts, blackouts, or even catastrophic grid failures.

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