Under the “Bring Your Own Power” model, data center developers would willingly finance their own dedicated electric generation in order to leapfrog the interconnection process at ERCOT.
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Stymied by ERCOT’s mounting interconnection backlog, data center developers say they’re willing to invest in their own dedicated electric generators off grid if that means they can launch their operations sooner.
That was one of the main take-away messages state lawmakers received during a legislative hearing May 6 in advance of next year’s legislative session. Conducted by the House Committee on State Affairs, the hearing at the Texas Capitol was called to consider self-sufficient microgrid systems and other emerging energy strategies. However, frustration over the pace of grid connections became quickly apparent among industry players.
For instance, Gideon Powell, CEO of an energy company that serves AI developers, said that given the current ERCOT backlog, many industry investors have no confidence that they will receive interconnection approvals anytime soon. “There is no line of sight at ERCOT if you want to get power … and capital is leaving (Texas) because there is too much uncertainty,” he said.
Powell and other industry witnesses suggested a “Bring Your Own Power” concept as an intermediate solution. Under it, data center developers would willingly finance their own dedicated electric generation in order to leapfrog the interconnection process altogether. For that to occur, however, the Texas Legislature may need to clarify certain statutory requirements, according to testimony,
Once the backlog clears, such project developers might seek ERCOT connections — and would accept additional regulatory restrictions, said Powell. “With the concept of bring your own power, the simplicity is beautiful. But it would require conversations about statutory definitions,” he said..
Other highlights from the day’s testimony include:
ERCOT Market Design manager Ryan King discussed an “Aggregated Distributed Energy Resources” pilot program that began in 2023. Under this “ADER” pilot, ERCOT can turn to thousands of home batteries and other small energy sources that have been combined to act as a single, giant virtual power plant. King said the pilot program is growing quickly, but that it eventually could lead to reliability problems if not handled properly. “We need to make sure that we account for how these things are modeled and as we fix those issues, we can remove some of the limits” to the current ADER pilot program, he said.
CenterPoint Energy Vice President Jason Ryan said that Texas leads the nation in ADER development, but lags when it comes to supporting microgrid systems. “We’ll have to tackle that next,” he said. The utility executive also noted that the City of Houston is examining the use of microgrids around hospitals and other critical facilities. If handled properly, such systems could help keep the lights on for nearby businesses and homes during grid emergencies, he said.
Benjamin Barkley of the state Office of Public Utility Counsel said that any microgrid connecting to ERCOT should pay for the cost of that interconnection.“The cost of that interconnection should not fall on small commercial and residential consumers,” he said.
Energy executive Pat Wood said that electric transmission and distribution utilities should be given financial incentives to encourage the development of these new technologies. He noted that T&D utilities receive financial returns on line construction under the current regulatory framework, but not for encouraging ADER or microgrid systems. Wood suggested that the state should consider a move to “streamline” ratemaking, which would reduce the regulatory burden for utilities. However, studies by consumer groups have shown that such ratemaking strategies leads to higher electric prices. Wood is former chair of both the Texas Public Utility Commission and the federal North American Electric Reliability Corporation.
Margo Weisz, executive director of the Texas Energy Poverty Research Institute, said that energy bills have gone up about 30 percent over the last five years and are expected to go up another 30 percent in the coming years. She said that driving much of those increases are transmission and distribution utility expenditures. She noted that Texas does not require utilities to report non-payment disconnections, but independent studies have shown that Texas has more than any other state. For those reasons, she said that ADER interconnection costs should be allocated in such a way as to not disproportionately burden residential ratepayers.