Texas finalizes $1.8B to build solar, battery, and gas-powered microgrids todayheadline

The Texas Legislature ended its biennial session without passing a slew of bills that could have killed the state’s booming solar and battery sector, and by extension, the ability to keep the Texas grid running amid extreme weather and surging demand for electricity.

It did pass a law that could strengthen the state’s electricity reliability by encouraging the construction of more microgrids — combinations of small-scale gas-fired power, solar, and batteries that can be built quickly. Last week, Texas lawmakers authorized a long-awaited $1.8 billion fund to support microgrid deployment at hospitals, nursing homes, water treatment plants, police and fire stations, and other critical facilities across the state.

The Texas Backup Power Package Program has awaited funding since 2023, when it was created as part of a broader legislative package. The goal is to help Texans protect themselves against extreme weather-driven grid emergencies like the disastrous blackouts during 2021’s Winter Storm Uri, or the widespread power outages after 2024’s Hurricane Beryl.

Lawmakers failed to authorize the $1.8 billion in microgrid funding in 2023, however. Instead, the state pushed ahead with $5 billion for the Texas Energy Fund, which offers low-interest loans to developers of large-scale gas-fired power plants. That program has struggled. One project that applied for funding was found to be fraudulent. Others were denied loans. And many more projects have dropped out of contention, as developers deal with the same gas turbine shortages and rising costs that are dogging gas build-outs across the country.

This year, lawmakers finally approved the microgrid funding, which is part of the remaining $5 billion in Texas Energy Fund spending officially authorized during the just-concluded session. That’s a big deal, said Doug Lewin, president of Texas-based energy consultancy Stoic Energy and author of The Texas Energy and Power Newsletter.

“Now those funds will presumably begin to flow — and I think that puts us in the upper echelon of states for microgrid policy,” he said.

Among the bills that failed this session in the face of opposition from environmental, business, and consumer groups were two — SB 388 and SB 715 — that would have forced new solar, wind, and battery projects to pay for a massive and equivalent amount of new capacity from fossil-gas power plants.

The problem with such policies is not just the fallacy that building more planet-warming gas power plants guarantees a more reliable grid, industry experts say. It’s also that companies simply can’t build gas power plants fast enough to meet booming energy needs, not just in Texas, but across the country. Because those bills would have required gas to be built alongside renewables — and because gas power plant construction is seriously constrained — the legislation would have amounted to a block on many gigawatts’ worth of new solar, wind, and battery developments in the state.

”I think one of the most important things that happened this session is this really broad-based business coalition communicating to anyone who would listen that these policies trying to restrict development of renewables aren’t helpful,” Lewin said.

Low-cost power from renewables and batteries ​“is a big deal to manufacturers, to industrial customers, and to the oil and gas industry that’s been working off diesel generators for decades and are now connecting to the grid,” he said.

Making microgrids happen

For years now, Lewin has been calling on state leaders to focus on helping customers save energy and keep power flowing during hurricanes, heat waves, and winter storms. He thinks microgrids are a good way to do that.

When the broader grid is functioning well, facilities equipped with microgrids can use their solar, batteries, and generators to reduce their use of grid power. But when the grid goes down or experiences serious stress, those facilities can rely on those resources to continue running.

Microgrids could also help meet ballooning power demand from homes, businesses, factories, and especially data centers chasing the AI boom that make up a massive share of future load growth forecasts, he said. The Electric Reliability Council of Texas, the grid operator for most of the state, forecast in April that peak electricity demand could more than double in the next five years. The number of data centers that end up getting built in Texas will ultimately determine how much new power the state actually needs.

The microgrid program limits individual projects to no larger than 2.5 megawatts, Lewin said. That’s far smaller than the hundreds of megawatts of capacity that can come from a single gas-fired power plant. But what microgrid projects lack in size they make up for in speed of construction, and many smaller-scale backup power projects will do more to meet demand than big power plants that take five or more years to build, he said. That’s especially true if the microgrids are located at data centers themselves.

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To be clear, data centers aren’t the target of the Texas Backup Power Package Program. Instead, the fund is set up to help sites that can’t otherwise afford on-site backup power, explained Joel Yu, senior vice president of policy and external affairs at Enchanted Rock. The Houston-based microgrid operator runs 500 megawatts’ worth of projects at grocery stores, truck stops, and other large power customers in Texas. Enchanted Rock has also deployed gas-fired generators at water utilities and irrigation districts, including Houston’s Northeast Water Purification Plant.

“The $1.8 billion is a huge amount of money, and more ambitious than programs we’ve seen in other jurisdictions,” Yu said. ​“But it’s very much in line with state policy to improve resilience at critical facilities since Winter Storm Uri,” which knocked out power to more than 4.5 million people for up to a week in February 2021, leading to the deaths of an estimated 200 people and more than $100 billion in property damages.

Enchanted Rock’s existing customers tend to be larger entities that can secure financing and clearly quantify the financial value of backup power generation, Yu said. The $1.8 billion microgrid program ​“unlocks opportunities for customers who aren’t as sophisticated, and don’t have the wherewithal to pay that extra cost,” he said.

Assisted living facilities are particularly good candidates for state-funded microgrids, given how deadly power outages can be to older adults or medically compromised people. Alexa Schoeman, deputy of the state’s long-term care ombudsman’s office, told the Public Utility Commission of Texas in a March statement that the more than 80,000 residents of assisted living facilities in the state are at risk from extended power outages, and that ​“operators have cited cost as the reason they are not able to install lifesaving backup power at their locations.”

Yu declined to name any customers that Enchanted Rock is working with to take advantage of the fund. ​“But there’s been a lot of interest from critical facilities that might want to make use of this. We’ve talked to folks in nursing homes, assisted living industries, and low-income housing, and other critical infrastructure, trying to get into the program.”

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Enchanted Rock has joined other backup generation providers including Bloom Energy, Base Power, Cummins, Generac, Mainspring Energy, and Power Secure in what Yu called an ​“informal group of like-minded companies.” Dubbed Grid Resilience in Texas, or GRIT for short, the coalition is working with the Electric Reliability Council of Texas and the Public Utility Commission on the $1.8 billion microgrid program, he said.

Most of these companies focus on gas-fueled power generation systems, whether those are reciprocating engines like those Enchanted Rock uses, linear generators from Mainspring, or fuel cells from Bloom Energy. Others specialize in battery backup systems, as with startup Base Power, or combine solar, batteries, and energy control systems with generators, as with Generac.

The legislation creating the Texas Backup Power Package Program allows projects to tap up to $500 of state funding per kilowatt of generation capacity installed, and requires solar, batteries, and either fossil gas or propane-fueled generation, Yu said. But it ​“isn’t prescriptive about what proportions are in the mix,” he added.

Different combinations could offer more favorable economics for different types of customers. Some may find that lots of solar panels are useful for lowering day-to-day utility bills, while others may want to maximize gas-fueled generation to cover multiday winter outages, when solar-charged batteries are less useful.

The legislation creating the program does limit projects from actively playing in the grid operator’s market programs, Yu added, meaning microgrid owners will face restrictions on selling the power they generate or the grid-balancing services they can provide to the market.

Still, that ​“does leave some room for customers to leverage the assets for behind-the-meter value,” such as using solar to offset utility power purchases, Yu said. ​“That’s going to be very important to making the economics work.”