Proposed legislation would impose new constraints and regulatory obstacles for renewable energy, as conservative responses to ESG-related initiatives continue to morph across the US.

The Texas legislature is considering several bills that could significantly impact both the regulatory landscape for renewable energy projects in the state and policy debates heating up around the country.

Texas leads among US states in renewable energy generation, producing more electricity from wind and utility-scale solar facilities than any other state by far.[1] In 2022, for instance, it produced more than twice the number of gigawatt-hours from wind and utility-scale solar sources than California. However, the proposed bills could substantially alter the trajectory (and viability) of various energy transition projects, as conservative policymakers continue to flex their regulatory power to shape the conversation around ESG and related initiatives.

This post summarizes the key aspects of several bills under consideration in the state and briefly outlines what they might mean for renewable energy projects in Texas.

The Bills in Play

Nearly 10 bills have been introduced in the Texas Senate that could potentially dampen the state’s renewable energy sector, either by imposing direct obligations on renewable energy projects or altering the projects’ competitiveness against their more conventional energy counterparts. Some of the more noteworthy proposals include:

• Senate Bill 624 (SB 624) would impose additional permitting requirements on wind and solar generating facilities in the state. As drafted, SB 624 would prohibit the construction or operation of a renewable energy generation facility without a permit from the Public Utility Commission of Texas (PUCT) or, in the case of construction only, an order from the PUCT approving the project. In addition to certain administrative details, such as any assumed business name and descriptions of the facility, applicants would also be required to provide more substantial information, including an environmental impact statement produced by the Texas Parks and Wildlife Department,[2] and a list of persons who may be affected by the application. The PUCT would be required to provide notice to all property owners within a 25-mile radius of the project, who could then request a public hearing. Permit holders would also be subject to siting restrictions for the facilities, in addition to an annual fee and certain ongoing environmental monitoring and reporting requirements.
• Senate Bill 2014 (SB 2014) would remove certain regulatory supports for renewable energy generation, such as by repealing Section 39.904 (regarding renewable energy promotion) of the Texas Utilities Code, ending subsidies paid by Texas customers to renewable generation facilities for the power produced, and eliminating requirements for in the expansion of transmission facilities to help with renewable energy capacity.
• Senate Bill 2015 (SB 2015) would establish a goal for 50% of new generating capacity installed in the Electric Reliability Council of Texas (ERCOT) power region after January 1, 2024, to come from “dispatchable” projects (i.e., primarily natural gas projects, although other fossil fuel and nuclear generators might also qualify). To promote this goal, SB 2015 would establish a dispatchable generation credits scheme, which would require power generation companies, municipally-owned utilities, or electric co-operatives that do not satisfy the 50% requirement by directly owning or purchasing capacity using dispatchable generation technologies to purchase sufficient dispatchable generation energy credits to offset any difference.

In addition, Senate Bills 6 and 7 (SB 6 and SB 7), which both passed the Texas Senate on April 5, 2023, would direct more money and support to natural gas energy production in the state. Under SB 7, wind and solar generators would effectively have to pay a credit to guarantee that they can deliver power, potentially increasing the cost of renewable energy generation in the state. Supporters of the bill argue that “on-demand” dispatchable resources are necessary to improve and protect the electric grid. However, both of these bills arguably reveal tension within the state between addressing the physical impacts of climate change and providing energy security for millions of Texans as temperatures become more volatile and energy demands increase.

What the New Proposals Mean for Renewable Energy Projects

ESG-related initiatives are under scrutiny from multiple angles, and renewable energy is no exception. Over the past year, adverse reactions to prominent ESG trends have become common at the state level across the US, and will likely continue (even, and perhaps especially, as other states and jurisdictions pursue policies in the opposite direction). However, the bills in Texas are among the first instances in which policymakers are specifically targeting energy transition projects or other ESG-related industries or initiatives. While some of the proposed regulatory changes in Texas might have minimal impacts, others could materially alter the cost of certain projects or the degree to which companies are willing or able to explore how renewables fit into their overall energy strategy.

We expect state-level reactions to ESG-related trends and developments to continue in the US, and this regulatory proliferation and fragmentation will likely require companies to continue to take a hard look at the evolving legal environment when evaluating near- and longer-term strategies.

Endnotes

[1] See, e.g., U.S. Energy Information Agency, Where Wind Power Is Harnessed and Where Solar Is Found and Used, https://www.eia.gov/energyexplained/.

[2] Environmental impact statements would not be required for new conventional (i.e., fossil fuel-powered) electric generating facilities.