The Impact of Renewable Energy Tax Incentives on Electricity Pricing in Texas

Abstract

Texas has abundant natural resources, making it a good place for renewable energy facilities to build. Unfortunately, property taxes are the highest tax on an incoming renewable energy facility in the state. In order to increase renewable energy in the state, Texas tax code Chapter 313 was introduced. Chapter 313 allows school districts the opportunity to offer a 10-year limit, ranging from USD 10 million to USD 100 million, on the taxable value of a new green energy project. With Chapter 313 ending in 2022, the following question is raised: how do tax incentives that increase the number of applications for producing renewable energy in Texas impact the wholesale, real-time pricing of electricity in the state? Skew-t regression models were implemented on a large dataset, focusing on the designated North, Houston, and West regions of the Electricity Reliability Council of Texas (ERCOT), since these regions account for 80% of the state’s energy consumption. Analysis focused on the hours ending at 3 AM, 11 AM, and 4 PM, due to the ERCOT’s time-of-day pricing. Three key findings related to the above question resulted. First, tax incentives that increase the number of active wind and solar facilities lead to a statistically significant (p < 0.0001) reduction in wholesale electricity price (USD/MWh), ranging between 2.31% and 6.6% across the ERCOT during different hours of the day. Second, for a 10% increase in tax-incentivized green energy generation, during a 24-hour period, there is a statistically significant (p < 0.0001) reduction in the generation cost (USD/MWh), ranging between 0.82% and 1.96%. Finally, electricity price reductions from solar energy are much lower than those from wind generation and/or are not statistically significant.