Why aren’t Texans paid to help prevent blackouts during heat waves?

In Texas, record-setting heat is causing record-setting electricity demand, as power-hungry air conditioners become essential to daily life. Though wind and solar power are helping to keep the grid online amid this unrelenting heat, the state has another crucial clean energy resource it could tap in times of extreme weather — if only regulators would make it happen.

For years, energy-efficiency and consumer advocates have pushed Texas lawmakers, regulators and utilities to take stronger action to make homes and apartments more energy-efficient and reward households for reducing energy use when the grid is under the most stress. These ​“demand-side” solutions to the state’s grid challenges aren’t just vital to keeping Texans safe during times of extreme weather, they say — they’re also the cheapest way to make the grid more reliable.

Although Texas is building more wind and solar than any other state, that power isn’t always available when the grid needs it. Meanwhile, the state’s fossil gas and coal power plants, which still provide the majority of its power, have struggled to remain up and running during extreme cold snaps and heat waves.

Texas is among the fastest-growing states in the nation, and climate change is causing it to experience increasingly extreme weather all year round. The state simply can’t build enough new generation fast enough to keep up with skyrocketing demand, according to Alison Silverstein, an energy analyst and former adviser to the Public Utility Commission of Texas and the Federal Energy Regulatory Commission.

“What we can do is use energy efficiency and demand response to stabilize and rationalize that demand growth,” she said. Texas has a decent set of efficiency and demand-response programs for commercial and industrial customers, she said, but almost none for residential customers.

That leaves a huge chunk of grid value unused, she said. For example, more efficient home insulation and HVAC systems could reduce energy demand, as well as help vulnerable Texans save on utility bills and protect themselves from extreme heat. And smart thermostats and other devices that can shift home air-conditioner use during grid peaks, combined with financial incentives to encourage customers to do so, could shave gigawatts’ worth of peak demand from power grids at a fraction of the cost of building an equivalent amount of new power plant capacity.

But calls to fund these solutions have been ignored, advocates say. That’s left Texas in the bottom rankings of states in terms of spending on residential efficiency and with few incentives for households to conserve or shift energy use when the grid needs it most, a practice known as ​“demand response.”

For their part, the state’s largest utilities have fought against more stringent efficiency standards, claiming they would add too much cost to already-rising electric bills, Silverstein said.

“What they’re very carefully not saying is that our electric bills in Texas have already gone sky-high,” she said, due to a combination of rising fossil gas prices and the impact of the state’s ongoing struggles with grid reliability.

The biggest hit came in February 2021, when a winter storm caused a cascading set of failures in the state’s fossil gas production and delivery networks and fossil-fueled power plants that caused massive power outages for millions of people, leading to an estimated 246 deaths, nearly $200 billion in property damage and more than $10 billion in energy costs being passed on to customers.

Against this backdrop, ​“the cost of doing more energy efficiency and demand response are staggeringly cheaper than building the equivalent amount of new generation,” Silverstein said.

But this year’s recently concluded legislative session has done ​“nothing” to change the equation, Silverstein said. Instead, state lawmakers opted to pass laws directing billions of dollars toward shoring up fossil-fueled power plants.

Energy efficiency and demand response: The cheapest, fastest option for the Texas grid

The financial and grid-reliability payoffs of an approach that focuses on reducing the demand for electricity could be transformative for Texas, according to a May report from the American Council for a Energy-Efficient Economy (ACEEE).

The research studied the potential impact of boosting utility spending on efficiency and demand-response programs, ranging from whole-home insulation and HVAC replacements to programs that pay customers to allow utilities to control home devices like smart thermostats or central AC.

Together, the programs could cut summer peak electricity demand by more than 14 gigawatts from 2024 through 2030, according to ACEEE’s forecast. So far this summer, the state has set a peak demand record of nearly 81 gigawatts, a figure that is certain to be topped in the years — and possibly even days — to come.

Though it would take years for these demand-reduction programs to have a significant impact, they can likely scale far faster than building new fossil-fuel power plants.

The programs would also be much less expensive than building an equivalent amount of new fossil-fuel generation, according to the ACEEE report. The costs of the 10 studied programs would add about $7 per month to customers’ utility bills, on average, by the decade’s end. But the impact of lowering power costs would add up to an average of $20 per month, yielding a net savings of $13 per month.

ACEEE’s basket of programs included several aimed at reducing wintertime power demand spikes, such as replacing fossil gas furnaces and resistance electric heating with more efficient heat pumps. For the summertime savings, the biggest impacts outside of EV charging controls came from offering free or low-cost smart thermostats to households and enrolling them in air-conditioner demand response programs.

The report estimates that such utility incentives would entice about a quarter of Texan households to participate by 2030 — enough to reduce summertime peak electricity demand by about 5.2 gigawatts.

ACEEE’s model used conservative savings estimates to arrive at its final figures, said Jennifer Amann, a senior fellow in the organization’s buildings program. It also used real-world data from the more aggressive efficiency and demand-response programs on offer from the state’s two big municipal utilities, Austin Energy, which serves the state’s capital city of Austin, and San Antonio’s CPS Energy.

That in-state data is ​“really nice to show that this isn’t a crazy California idea,” she said. ​“These are things that folks in Texas are accepting of.” 

How technology can make homes into grid-saving resources

As advocates push for stronger demand-response policy in Texas, the technologies that enable these programs are improving rapidly.

Smart thermostats from companies such as Google’s Nest, Resideo’s Honeywell Home and Generac-owned ecobee use increasingly sophisticated methods to ingest data about individual homeowner behaviors, such as their preferred comfort levels, willingness to forgo cooling in exchange for bill savings, and the times when they tend to be at home or away.

“There’s a remarkable opportunity here with technology and with customer behavior,” said Colin Rowan, director of strategy and communication at Pecan Street, an Austin-based nonprofit research organization that has collected second-by-second electricity-usage data from more than 100 households over the course of more than a decade.

A recent Pecan Street report analyzed 67 homes in Austin during the summers from 2019 to 2021 and found that air-conditioning power use was one-third lower in homes where smart thermostats were both automated to reduce use when possible and set manually to minimize power consumption when occupants weren’t home, compared to homes that lacked smart thermostats.

These energy reductions came from customers who weren’t signed up for demand-response programs, but who were instead motivated by bill savings and conservation concerns, Rowan pointed out. Offering them incentive payments on top of their existing energy-saving behavior could drive even more significant and reliable peak-load reductions.

“Groups like ours and others have been saying for years that the cheapest megawatt is the one you never use,” he said. ​“If we can manage demand better, we don’t have to worry as much about building new power plants. It would ease the strain on the grid during heat waves like we’re having today.”

Why Texas is lagging in energy efficiency and demand response 

The situation in Texas is complicated by the deregulated energy market structure in place across most of the state, which separates the market into three buckets: power generators, utilities that run the power grids, and retail electricity providers that sell that power to customers. Big utilities such as CenterPoint in Houston and Oncor in Dallas are in charge of state-mandated efficiency programs, but it’s the retail electric providers that actually engage with customers and offer them programs and rate plans aimed at driving more grid-relieving behavior.

According to Scott Hinson, Pecan Street’s CTO, stronger state policy support could incentivize retail electric providers to commit to focusing more aggressively on reducing electricity demand.

While today’s market structures do offer some economic advantages for retailers to try to convince customers to participate in demand-response programs, ​“their primary business concern is retention of customers,” he said. ​“If that aligns with conservation, great. If it doesn’t, they’re not necessarily that well incentivized to do anything” to reduce power demand.

Even so, high peak power prices are encouraging some retail electricity providers to help their customers use less power during heat waves. Many of the state’s big electricity retailers like Reliant and TXU offer discounts on smart thermostats or Wi-Fi-enabled ​“smart plugs” that can temporarily shut off big power-using appliances like refrigerators. And a subset of the state’s smaller upstart retailers, such as U.K.-based Octopus Energy and California-based OhmConnect, are making customer peak-shaving a central selling point. 

That’s because those retailers buy power via long-term and spot contracts on ERCOT’s highly volatile wholesale energy market, where prices during grid-stress events can rise from typical ranges of $40 per megawatt-hour to as high as $5,000 per megawatt-hour. Being able to get customers to use even a fraction less energy during those high-priced hours can help retailers reduce their exposure to those price spikes.

OhmConnect, like most other Texas retail electric providers, remains close-mouthed about how many customers it has signed up, how many are engaging in demand response or how their participation is affecting the company’s financial outlook. Nor is it clear how retailers seeking to ease grid stress during periods of high electricity use might impact longer-term energy demand trends across ERCOT’s territory.

Don Whaley, president of OhmConnect’s Texas operations, sees opportunity stemming from a bill that did pass in this year’s state legislative session — Senate Bill 1699, which orders state regulators to establish new demand-reduction goals, including the use of demand-response programs.

While the bill’s final form stripped out mandatory targets, leaving it up to the Public Utility Commission of Texas to determine the thresholds utilities will eventually have to meet, it’s still noteworthy that ​“there’s a bill that for the first time in Texas has recognized the potential of residential demand response,” Whaley said. ​“It’s been legislated into the mainstream conversation.”

But energy analyst Alison Silverstein noted that it will take until at least 2024 for the commission to implement the bill and that its ultimate outcome remains uncertain. The commission also intends to launch a proceeding to reexamine the role of energy efficiency and demand response this fall, she said. ​“But they’ve done nothing yet.”

Meanwhile, a bill that would have required Texas utilities to achieve enough energy efficiency to reduce peak electricity demand by 1 percent — double the state’s current requirement of half a percent, one of the lowest efficiency standards in the U.S. — failed to pass in this year’s session.

Energy-efficiency and demand-response programs also remain woefully underfunded in Texas, according to Silverstein.

The efficiency programs from Texas utilities are reaching fewer than 30,000 homes per year out of about 12 million homes and apartments in the state, she said. And outside of the state’s municipal utilities and electric cooperatives, households have almost no opportunities to enroll in programs that reward them for turning down power use when the grid faces the risk of heat-wave-driven blackouts.

The gigawatts of summertime grid-saving potential in U.S. homes

The energy-efficiency and demand-response programs that advocates want to see implemented in Texas have already been proven out across the country.

ACEEE’s Jennifer Amann cited the example of her hometown utility, Baltimore Gas & Electric, which has a long-running portfolio of efficiency and demand-response programs and incentives. A report compiled by Maryland state regulators documents the positive impact of these programs, including millions of homes served with upgrades and rebates on HVAC equipment, lighting, appliances and smart thermostats, as well as home-energy performance upgrades and lucrative demand-response programs that have collectively delivered hundreds of millions of dollars in energy savings and incentives.

Nationwide, the potential value of ​“load-flexibility” measures like demand response adds up to nearly 200 gigawatts, or roughly 20 percent of U.S. peak summer electricity demand, according to a 2019 report from consultancy Brattle Group. Fully enabling that potential could yield $15 billion per year by 2030 in benefits, largely by avoiding the need to build new power plants.

Texas grid operator ERCOT does have some demand-response programs for big industrial and commercial customers. These programs have been used to successfully reduce electricity draw during the state’s summer grid peaks over the past few years. The incentives on offer include oft-maligned payments made to bitcoin mining operations in exchange for them agreeing to throttle back their computing activity during heat waves. (A bill that would have placed restrictions on bitcoin data centers participating in those programs failed to pass in this year’s legislative session.)

But residential customers in the majority of Texas have few opportunities to earn payments for responding to requests to curtail energy use. However, they have been voluntarily cutting power in response to emergency conservation calls from ERCOT during heat waves, Silverstein noted, meaning that ​“crypto miners are being paid hundreds of dollars per megawatt-hour for that conservation, and residential customers are being asked to do it for free.”

Voluntary, unpaid actions have their limits in an era of increasingly harsh heat waves, Michael Webber, a professor of energy resources at the University of Texas and the chief technology officer at the venture fund Energy Impact Partners, wrote in a June opinion piece in The New York Times.

Paying customers even relatively small incentives to shut off their air conditioners for about 15 minutes per hour during hot summer afternoons, by contrast, could yield up to 10 percent reductions in peak grid demand, a buffer that utilities and grid operators could build into their ongoing planning, he noted.

The gap between the power of households to help stabilize the grid and the value customers receive to wield that power isn’t a Texas-only problem, Webber highlighted. California’s grid operator relied on customers voluntarily reducing their electricity use during the state’s 2020 and 2022 heat waves, for example. California demand-response providers have repeatedly complained that the state hasn’t done enough to allow customers to be paid for helping to shore up the grid when it’s under stress.

Well-designed compensation programs could bail out the grid in times of emergency — and avoid alienating customers who might otherwise balk at being asked to turn off their ACs on a scorching-hot day.

But smart thermostats and demand-response programs can’t be the only approach used to help more households cope during the state’s increasingly extreme weather swings and other events that stress the grid, ACEEE’s Amann said.

More efficient appliances, better insulation and other fundamental energy-saving investments ​“are the things that are going to save people money and make homes healthier and more comfortable for them year-round,” she said. ​“They’ll also help when there are power outages.”

Amann hopes that federal funding could help improve Texas’ poor showing on these core efficiency measures. The Inflation Reduction Act passed by Congress last year includes about $10 billion in incentives for home efficiency, heating, cooling and electrification, with every state eligible for a portion of the funds. Texas will need to ​“develop strong programs” to make good use of its share of this federal funding, she said.

Silverstein noted that lower-income households in particular will need help with energy efficiency before they can hope to capture the value of smart thermostats and earn incentives from demand-response programs, which are largely targeted at wealthier homes today.

According to federal data, about one-third of Texas households are ​“energy-insecure,” she said, meaning that they must ​“make tradeoffs between paying an energy bill and paying for food or medicine or some other necessity.” These households are far more likely to have substandard air conditioning or none at all — an untenable situation in a state where climate change is expected to lead to a doubling in the number of summer days reaching triple-digit temperatures over the coming decade.

“One of the reasons that Texas electricity demand is not even higher is because so many people aren’t consuming the electricity they need to be safe” from heat due to resource constraints, she said.

“If all you do is deploy a smart thermostat and use it to run a 20-year-old air conditioner in a 60-year-old home with no insulation, it’s not going to make any difference to the comfort level or quality of cooling in that household,” she said.