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Special Energy Issue 2008
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MARCH REVENUE (IN MILLIONS): SALES TAX: $1,652.8 OIL PRODUCTION: $106.6 NATURAL GAS: $190.8
MOTOR FUELS: $248.0 MOTOR VEHICLE SALES: $271.1 TOBACCO: $113.7


A New Day for Energy

Reliable and affordable energy is critical to our state’s ability to maintain strong economic growth. Texas has long been a leader in the energy industry and today has nearly one-fourth of the nation’s oil reserves and about one-third of its natural gas reserves. Texas also leads the nation with more than a quarter of all U.S. refining capacity.

The Texas energy industry employs nearly 375,000 people who earned total wages of more than $35 billion in 2006.

The world almost certainly will meet future energy demands using a wide variety of resources, and our state is well positioned to benefit from diversification of the nation’s energy profile.

This issue of Fiscal Notes celebrates publication of The Energy Report, available at www.window.state.tx.us. The report – and this issue of Fiscal Notes – are intended to serve as reference tools for anyone seeking to understand the current Texas energy landscape.

Sincerely,

Susan Combs

Comptroller of Public Accounts

The Texas Portfolio

Profiling options discussed in the Comptroller’s Energy Report

By Bruce Wright

Energy Report Cover

A plentiful energy supply is a cornerstone of modern life. It’s also the factor that, more than any other, made Texas an important part of the world economy.

For much of the twentieth century, Texas’ economy was driven by the oil and gas industry. At the height of the oil boom of the early 1980s, the industry accounted for more than a quarter of the gross state product and of state government revenues. Though the state’s economy has diversified over the last 25 years, the industry is still important to our welfare, and has seen a recent resurgence due to rising oil and gas prices.

Today, Texas is the nation’s largest consumer of energy, accounting for nearly 12 percent of all U.S. energy use, primarily due to our fierce summers, the state’s large industrial complex and our large population. Texas is the nation’s largest producer of energy as well. About nine-tenths of the energy Texas produces comes from oil, gas, coal and nuclear power, all considered to be nonrenewable resources. But our reserves of fossil fuels are becoming harder and more expensive to find.

To meet our energy needs in the 21st century, Texas – and the rest of the world, for that matter – will have to rely on an array of resources. The state’s new energy portfolio will include renewable resources, nuclear power and traditional fossil fuels linked with new technologies to improve efficiency and reduce their environmental impact.

What Keeps the Lights On?

Coal and natural gas produce most of Texas’ electricity.

Coal and natural gas produce most of Texas' electricity.

Source: U.S. Energy Information Administration and Texas Comptroller of Public Accounts.

Electricity Production, Text Alternative

To help Texans weigh these options, the Comptroller’s office has created a comprehensive study, The Energy Report, which examines the energy options and opportunities facing our state in the new century. Comptroller analysts have assessed the availability, benefits and liabilities of a number of energy options that can continue to fuel our economy.

Key elements of Texas’ energy portfolio are likely to include:

Solar Energy

The sun is an inexhaustible energy source. For millennia, humans have harnessed its power with methods as simple as south-facing windows. Today, a constantly improving array of technologies is making the sun a promising source for commercial quantities of electrical power.

Photovoltaic cells have become common in “off-grid” uses such as railroad warning signs and area lighting. Increasing numbers of homeowners are using them as well to supplement or even replace power from the utility company.

solar panels

For large-scale power production, however, concentrating solar power (CSP) systems are more appropriate. CSP systems use fields of reflectors to focus sunlight that then heats a fluid to make steam, which in turn is used to drive turbines and generate electricity. Texas has joined with six other Southwestern states and the U.S. Department of Energy (DOE) in a project aimed at installing CSP systems capable of generating 1,000 megawatts (MW) of power in the southwestern states by 2010.

But solar power is not without its drawbacks. At present, electricity generated by solar technology is relatively expensive. And solar energy is an intermittent energy source, producing power only when the sun is shining.

windmills

Wind

Power generated by the wind is among the world’s fastest-growing energy sources, increasing by 30 percent annually worldwide over the last decade. Texas had a quarter of the nation’s installed wind energy capacity at the end of 2007, by far the most of any state.

Texas wind production is mostly centered in the gusty regions of West Texas. Transmitting its energy has been a significant hurdle for the wind industry, since the best sites for wind energy development often are far away from urban centers and the wire networks that provide them with power.

Wind energy can be more expensive than that produced with fossil fuels, but its cost per kilowatt-hour has declined by about 80 percent over the last two decades due in large part to improved technologies.

Wind energy is intermittent due to its variable nature – wind speed and direction change more or less continuously. Texans were pointedly reminded of this in February 2008, when a sudden drop in wind energy production helped trigger service cuts to some large customers of the state’s largest power grid. In addition, the siting of wind turbines can be problematic, due to public opposition to their appearance, noise and potential hazard to wildlife.

nuclear plant

Nuclear Energy

Excluding capital costs, nuclear energy is among the cheapest ways to generate electricity, and produces no emissions of greenhouse gases. Today, a new generation of advanced reactors, rising global energy demands and the need to reduce emissions all point to a renaissance for nuclear energy.

Texas has two operating nuclear power facilities, Comanche Peak near Glen Rose and the South Texas Project (STP) in Matagorda County. But more facilities are on the horizon. Owners of the South Texas Project have submitted an application to expand their facility. And over the next two years, the U.S. Nuclear Regulatory Commission expects to receive applications for six more new nuclear reactors in Texas, two more at Comanche Peak and four at two new sites. Together, Comanche Peak and STP produce about 10 percent of the state’s electricity.

Perhaps the most hotly debated issue concerning nuclear power is the disposal of radioactive waste. This concern may be lessened with the eventual opening of the nation’s first permanent repository for high-level radioactive waste at Yucca Mountain, Nevada. DOE estimates that Yucca Mountain may begin accepting spent nuclear fuel in 2017 at the earliest.

cows feeding

Biomass

Biomass is simply any plant or animal matter used to produce electricity, heat or transportation fuels, such as wood products, crops, grasses and municipal solid waste.

Texas’ cattle industry, for instance, yields an inevitable byproduct in the form of manure. This waste is increasingly being viewed as an energy source rather than a nuisance. An operational plant in Stephenville that turns dairy waste and restaurant grease into natural gas supports seven full-time jobs; a manure gas-fired ethanol plant near Hereford in the Panhandle will create 61 jobs in 2008.

Landfills are still another useful source of energy. About half of the decomposition gases they emit consist of methane that can be used to generate electricity and fire boilers. Texas has at least 24 landfill gas energy projects and at least 57 more sites that could produce landfill gas in useful quantities.

Such sources can provide useful amounts of supplemental energy, but they have their drawbacks as well, largely in the form of higher costs, limited supplies and transportation difficulties. The forms of biomass energy attracting the most attention, however, are ethanol and biodiesel, liquid fuels produced from crops and other organic matter.

corn

Ethanol and Biodiesel

Ethanol can be blended with gasoline to fuel vehicles, generally as E10 – a 10-percent ethanol, 90-percent gasoline mixture than can be used in conventional autos, or E85, which is 85 percent ethanol and 15 percent gasoline, usable only by special “flex-fuel” vehicles. In the U.S., most ethanol is made from corn, although research continues into the use of other crops for this purpose. Two Texas ethanol plants are operating and two more are under construction.

Texas Biomass Energy Consumption
by Sector, 2005

Percent of Total Biomass

Pie Chart

2005 is the most recent data available.

Source: U.S. Energy Information Administration

Biomass Consumption, Text Alternative

Ethanol is not without problems, however. A boom in production has driven up the price of corn, which in turn has contributed to increases in the price of cattle feed and various food products. In addition, production of biofuels from feedstocks such as corn and soy is extremely water-intensive.

Biodiesel is simply diesel fuel made from animal or vegetable materials, such as soybeans and peanuts, animal fats and used cooking oils. It can be substituted for or supplemented with conventional, petroleum-based diesel fuel (“petrodiesel”). The most common blend used today is a mix of 20 percent biodiesel with 80 percent petrodiesel, or “B20.” More than 200 major vehicle fleets in the U.S. run on biodiesel, including those of the U.S. Postal Service and the military.

Texas is the nation’s largest producer of biodiesel, with a current production capacity of more than 100 million gallons annually and another 87 million gallons in annual capacity under construction. Biodiesel is nontoxic, and vehicles using it emit fewer pollutants than those fueled by petrodiesel, although they also generally get fewer miles per gallon. FN

See the Report

The Energy Report contains in-depth information and analysis on these and other energy sources expected to play an increasing role in the Texas economy. The report is available on the Web at www.window.state.tx.us/specialrpt/energy.


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