Over the last two decades, Texas’ competitive electric market has helped make the state a model of good electricity policy, delivering reliable power and saving consumers billions. Texas has been able to achieve this by going its own way and by having the political discipline not to interfere with the free workings of the market.

The temptation to adopt the more statist policies of other places is always present, however. Recently, federal regulators have adopted a Minimum Offer Price Rule (MOPR), which places a minimum price on the amount that a generator can bid into electricity markets. Proponents of the new MOPR rule say that it is necessary to counteract the effects of state subsidies for renewable energy, which supposedly imperils the reliability of the electrical grid. The new federal rule is expected to cost consumers billions in higher electricity prices over the long term.

Because most of Texas is served by a wholly intrastate electric grid, it is exempt from many federal electricity regulations. Yet some have suggested that Texas adopt its own version of MOPR for the state. During testimony before the Texas senate in February, witnesses endorsed the idea as a way to offset federal renewable energy subsidies.

This would be a mistake. First, price controls are an uneconomic tool to counteract the price-distorting effects of subsidies. Second, while maintaining electric reliability is important, concerns that renewable energy is causing an electric reliability crisis are wildly overblown. Renewables have steadily grown to over 20 percent of the Texas electric mix, and yet by some metrics Texas has a more reliable electric system than the rest of the country. Valid reliability challenges to renewables integration exist, but the best path to address that is to liberate markets to perform more nimbly in response to granular price signals. MOPR would undermine these price signals and result in higher electricity prices for Texas consumers. But more fundamentally, MOPR would represent a major step away from the hands-off market approach that has been key to Texas’ electricity success.

As an alternative, Texas should focus on removing barriers to new technologies that can help make the grid more reliable and resilient. For example, distributed energy resources (DERs), such as demand response, rooftop solar or energy storage, can add needed flexibility to the grid and are located close to or behind the customer’s meter on the distribution grid. Energy storage could charge during times of excess generation, and then dispatch during other hours.  Demand response provides a safety value during times when electricity demand is high and helps customers better manage their consumption. And solar PV can generate electricity at times that help assist with other needed services to maintain the reliability of the system.

But DERs face major regulatory barriers to entry; many types are not even eligible to participate in the Texas electricity market because of outmoded rules designed only for centralized power plants. Under the status quo, Texas is foregoing a major market development opportunity and not doing itself any grid reliability favors. Instead of abandoning its traditional light-touch approach in favor of heavy-handed government regulations, Texas should let market-driven technological advances keep the state’s grid humming.

Image credit:  Bohbeh