Executive Summary

More people. More cars and trucks. More industry producing more products. Growth is at the heart of the future of Texas, offering opportunities for robust economic growth but also setting up a looming showdown as the state seeks to balance growth with efforts to achieve a net-zero carbon emission economy by 2050. A sustainable electric grid is fundamental to these aspirations, and the buzzword is “electrification.” It will be a task of monumental proportions. Electric power touches every facet of life, from brewing your morning coffee to education, health care, and industry. Residential, commercial, and industrial customers increasingly say they want to buy decarbonized electricity. Many large corporations operating in the state have set net-zero goals, adding to the pressure. The power sector is the third largest source of greenhouse gas emissions in Texas, and it supplies power to all the other sectors that are trying to reduce their carbon emissions. That means powering the shift from internal combustion engines to electric vehicles, and the transition of furnaces, appliances, and industrial processes to electrification.

The rest of the economy won’t be able to achieve its own net-zero goals if the power sector cannot meet these expectations.

The Energy Information Administration, International Energy Agency, and Intergovernmental Panel on Climate Change have all recognized that decarbonizing the electric grid is critical to reaching national and international carbon emissions reduction goals. The federal government set a goal of achieving a net-zero grid by 2035 in acknowledgment of the grid’s importance to other efforts. But environmental sustainability is just one part of what is known as the Energy Trilemma – electricity must be reliable and affordable as well. Decarbonized electricity is only valuable if it is available when consumers need it, and if they can afford to pay the bills.

Texas produces and consumes more electricity than any other state, generating 473.5 million megawatt hours of power in 2020, and demand is expected to reach 564 million megawatt hours by 2050. The growth in demand while simultaneously decarbonizing the grid will require more delivery infrastructure and generation capacity to guarantee reliability as the electric grid transforms.

The Texas grid is unique among U.S. states, with more than 80% of the market served by a selfcontained grid operated by ERCOT, the Electric Reliability Council of Texas. More than 80% of carbon emissions from electricity generation in Texas are also produced on the ERCOT grid, and the bulk of projected population growth over the next 30 years will occur in the region served by ERCOT. (Three other transmission organizations serve smaller swathes of Texas along with neighboring states.) ERCOT is ground zero in decarbonizing the Texas grid. And because ERCOT doesn’t connect to any other state grids, meaning it can’t buy electricity from elsewhere in the event of an outage, the solutions must be homegrown. For this paper, we assume the construct of the ERCOT system will remain unchanged.

Carbon emissions from the power sector have begun dropping steadily, if slowly, over the past 10 years, to 176.8 million metric tons of CO2 in 2020 from 239.6 million metric tons in 2011. They will have to drop substantially more – an additional annual average reduction of 14.5 million metric tons to meet net-zero electricity production by 2035, and about 7.25 million metric tons a year to achieve net-zero by 2050.

The reduction over the past decade is in part a consequence of the growth of zero-emission wind and solar power, but nearly 90% of the carbon dioxide emissions reductions are a result of the transition from coal-fired generation that was replaced by natural gas-fired units. Coal-fired generation accounted for approximately 16% of power on the ERCOT grid in 2022, down by half from 32% in 2017. Natural gas makes up the largest share of generation, at about 42%.

And while the significance of the transition overall has been remarkable, the variability of the alternative forms of generation that have been introduced has created new challenges.

On average, about 26% of power on the ERCOT grid is wind-generated – Texas leads the nation in wind power installed capacity and is the 6th largest system of wind in the world. An additional 10% comes from nuclear power, and 6% from solar energy. Simply expanding those emission-free sources of generation won’t solve the net-zero challenge, however, as any solution must also 3 ensure adequate future capacity, reliability, and affordability. Wind and sunshine may be free sources of fuel, but new transmission lines and the cost of prematurely retiring fossil fuel-generating plants add significantly to the price tag. And those free sources of fuel still consume major amounts of resources and produce major amounts of waste. Consider that a 100-megawatt wind farm, producing enough electricity to power 75,000 homes, requires 30,000 tons of iron ore, 50,000 tons of concrete, and 900 tons of plastics, none of which are carbon neutral. A 100- megawatt solar installation requires half again as much of those resources. At projected rates of deployment in the U.S., by 2050 it is expected that the retirements of these wind and solar projects will create significant amounts of waste with few cost-effective options for recycling many components like wind turbine blades and plastics used for wind and solar.

Winter Storm Uri in 2021 offered a stark demonstration of the need for reliability, as all types of power generation failed, leading to a days-long blackout across much of the state blamed for hundreds of deaths and billions of dollars in damages. More than half of the state’s natural gas supply was shut down due to power outages, frozen equipment, and frigid weather conditions. Some wind turbines also froze, reducing wind generation. Were it not for the generation from many of the coal-fired plants that are scheduled to be retired in the near future, longer-term outages would have resulted. Several bills pending before the Texas Legislature seek to address the reliability issue through commercial marketplace constructs to encourage dispatchable generation.

This white paper, part of a series on how Texas might achieve a net-zero economy by 2050, analyzes whether Texas can create a decarbonized grid by 2050 while maintaining reliability and affordability. Using a model-based analysis, we consider whether certain technologies provide comparative benefits on affordability and reliability – and if certain policies may encourage the incorporation of those technologies – by assessing five scenarios under which Texas might achieve a decarbonized electric grid. We also tried to assess the consequences, intended and unintended, of potential policies to ensure reducing emissions doesn’t result in unexpected challenges, be that higher costs, reduced operating reserves, or something entirely unforeseen. We used the National Energy Modeling System used in the EIA’s 2022 Energy Outlook scenarios to create the businessas-usual scenario, with the remaining scenarios designed as growth scenarios relative to the 4 business-as-usual case. To complete the analysis, we used the Regional Energy Deployment System model produced by the National Renewable Energy Laboratory.

In short, a net-zero grid is possible, but holistically addressing not just emissions but also adequate capacity at a reasonable cost requires an all-of-the-above solution.

We found that a scenario built upon using all available generating sources – focused on retaining existing baseload resources, including coal and natural gas, coupled with carbon capture, utilization, and storage (CCUS), the addition of hydrogen and more restrained growth of renewable generation – would be the lowest-cost pathway to a net-zero grid by 2050.

Under this scenario, nameplate capacity, or the maximum rated generating output, would grow to 240 gigawatts, while CO2 levels are reduced to negative due in part to CCUS used with natural gas combined cycle turbines. The total levelized cost between 2020-2050 would be $200.4 billion in 2020 dollars.

Other notable findings, addressed in more detail in the paper, include:

• Current projects under construction, under site review, or in the planning stages in ERCOT could add 54,644 megawatts of net nameplate generation to the grid, with 95% of that coming from renewables and batteries and the rest from natural gas generators. That’s somewhat deceptive; wind and solar don’t produce at the nameplate capacity, so the actual new generation available to the grid will be lower. In fact, on average as little as 15-40% of the planned nameplate capacity for wind and 50-80% of the planned nameplate capacity for solar may become available from the portion of these planned projects if constructed.
• Short-duration storage – ranging from 1-to-4 hours in duration – is growing, too. More than 8,000 megawatts of storage capacity have started construction or are the subject of an executed interconnection agreement. Another 61,850 megawatts are under study, with onethird planned to be co-located with wind, solar, or other generation and two-thirds planned as standalone storage projects. Many projects are capable of supplying power in only 1-to4-hour increments, serving to help smooth the demand curve over a day and not as a backup source of power.
• Even under the business-as-usual scenario, generating capacity would continue to grow to 212 gigawatts, largely through increases in onshore wind and natural gas combined cycle turbines, and CO2 emissions would fall to just below 56 million tons annually. That’s 70% below 2019 levels but not net-zero. The total levelized cost between 2020-2050 would be $217.1 billion in 2020 dollars.
• In a scenario characterized by high use of renewables, battery storage, and hydrogen, with medium emphasis on natural gas and CCUS, nameplate capacity grows to 390 gigawatts, and CO2 emissions are reduced to carbon negative levels due in part to using emissionsfree energy to produce hydrogen and DAC to remove emissions from fossil generation sources. The total levelized cost between 2020-2050 would be $221 billion in 2020 dollars.
• A scenario built on high use of renewables and storage, with relatively low emphasis on other fuels and technologies including CCUS, would allow capacity to grow to 329 gigawatts while reducing carbon to negative levels using large amounts of hydrogen. The total levelized cost between 2020-2050 would be $244.7 billion in 2020 dollars.
• The use of CCUS would improve the reliability of the grid in future years, allowing it to add net-zero baseload generation capacity without additional emissions. A grid incorporating CCUS will also allow the grid to maintain higher reserve margins and operational flexibility, offering reliability under a variety of weather stressors.
• The federal Inflation Reduction Act provides incentives for a broad range of clean energy technologies, including an extension of the investment and production tax credit for wind and solar through 2024. The tax credits will then transition to clean electricity investment and production tax credits for a broad range of emissions-free technologies, including nuclear generation, hydrogen production with renewable energy, stand-alone storage projects, hydro, geothermal, wind, and solar. The credits will be available until 2032 or until emissions from U.S. electricity production is equal to or less than 25% of emissions from such production in 2022.
• The IRA also modifies the 45Q tax credit to encourage CCUS, raising the credit to $60/ton for utilizing carbon dioxide, $85/ton for permanently storing carbon dioxide in geologic storage, $130/ton for utilizing carbon dioxide captured using direct air capture (DAC) technology, and $180/ton for storing carbon dioxide captured using DAC.

Decisions made over the next few years about how to decarbonize the Texas grid will include both technical and geopolitical concerns, including the reality that solar technologies require substantial amounts of rare earth minerals. By some estimates, meeting all U.S. electricity demands with solar energy would require a 2000% increase in the use of rare earth minerals, most of which are currently sourced from China. Beyond these technical and geopolitical issues, the development of the commercial marketplace will be a key driver for investment and adoption.

A carbon-free grid, our research suggests, is a far more complex task than simply focusing on emissions. Reducing carbon emissions, while imperative, can’t happen in a vacuum if we are to maintain our way of life, especially if we are to do so in ways that allow us to export solutions to the rest of the world.

Texas remains a focal point for innovation that can demonstrate, assist, and lead as an example of how the rest of the world can decarbonize. Scaling up wind and solar is unlikely to happen at a fast enough pace to help the world reach net-zero electricity within the next few decades. By using a wide range of technologies and fuel sources, however, a meaningful impact on emissions and the environment is possible.