Texas Border Business
The expansion in the Texas economy and population has been impressive of late, currently maintaining a pace of almost 500,000 new Texans and 300,000 jobs (in round numbers) per year. In addition, emerging sectors that require significant and reliable electricity supplies are surging. As a result, the need for generation and transmission capacity is rising at a pace far exceeding expectations from a few years ago.
If not addressed, inadequate power supplies and the resulting unreliability in the Texas electric grid could constrain economic growth by becoming a barrier to entry and expansion for companies looking to establish a presence in the state. Existing businesses also cannot function optimally with insufficient electricity.
Although ERCOT (which serves about 90% of the state’s electric load) is “on it,” it’s important that these projects are prioritized and supported. If not, the economic costs will be very high, not to mention the reduction in quality of life we would all face.
In order to illustrate the potential losses, we recently quantified the economic cost of inadequate transmission based on conditions that could occur in Texas. We used studies by the US Department of Energy as a partial basis for scenarios reflecting varying degrees of shortage severity. The levels of investment needed to avoid these supply inadequacies were also estimated based on current plans and related costs.
The initial scenario reflects an underinvestment in electric transmission of $3.65 billion relative to currently anticipated needs. By 2040, the Texas economy would be smaller than it would be otherwise by an estimated $9.7 billion in annual gross product and approximately 40,500 jobs (including multiplier effects).
If the shortages are more severe with an underinvestment of $10.41 billion, the projected total decrease in 2040 rises an estimated $22.3 billion in gross product and approximately 92,900 jobs. In the third scenario, an underinvestment in electric transmission of $12.66 billion would result in even greater losses of an estimated $25.5 billion in gross product and approximately 106,100 jobs by 2040 (including related multiplier effects). The cumulative losses through 2040 would total almost $160 billion, more than 12 times the cost of the needed investment. There would also be billions of dollars in lost revenues to the State and various local governments.
The ongoing location of data centers, blockchain, semiconductors, artificial intelligence, and other power-intensive sectors offer promising avenues for Texas to remain a leader in cutting-edge activity and provide local areas across the state with enormous investment opportunities. For the potential to fully materialize, however, we must not only generate sufficient power, but also move it from where it is to where it is needed. Transmission capacity is crucial but often overlooked, and needed enhancements should be prioritized. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.
