Even the oil and gas industry can’t deny the attraction of clean energy. Plentiful wind and solar in West Texas have enabled oil and gas operators to adopt renewables as the best option for electrification. 

Over the next twenty years, West Texas is expected to undergo massive load growth. This trend mirrors forecasted load across the entire United States. The scale of growth is astounding. Historically, electricity demanded increases at a rate of 0-3% per year since the 1980s, but as we enter the late 2020s, FERC is projecting a 15.8% growth in demand from 2024 to 2029. This level of demand in the US is only precedented by the widespread adoption of electrical appliances in the 1950s. For scale, a single percentage point of growth translates to billions of dollars in required grid investment. 

However, this growth is not uniform. The main drivers of additional load—data centers, advanced manufacturing, electrification, oil and gas, hydrogen production—are concentrated in certain geographies. This is clear in ERCOT (the Electric Reliability Council of Texas)—Texas’ competitive wholesale electricity market. While national load growth rates are rising, growth in western Texas—specifically in the Permian Basin—is notably higher. 

The Permian basin is the largest oil producing region of the United States. Since 2019, major operators in the basin like Chevron and ExxonMobil pledged to reduce carbon emissions through the electrification of oil and gas infrastructure. Moreover, the increased demand for electrification also coincides with long-term projected growth in the production and price of oil for the basin through at least the 2030s with current technology.

Operators in the region would need to electrify 90% of their equipment to meet stated emissions targets. This means electrifying key processes like drilling, pumps, water handling, material separators, compressors, equipment batteries, and gas transport. Surveys estimate that roughly 1/3 of fields are at least partially electrified. Historically, grid electricity has been relatively cheap in West Texas, making it difficult for renewables to compete until their rapid cost decline over the past fifteen years. However, operators face numerous technological and regulatory hurdles to secure grid power. For example, electrification requires equipment retrofits and building out the grid to isolated parts of the state.

 By electrifying, gas and oil operators estimate that they would increase their load demand from 3.4 GW in 2022 to 11.9 GW by 2032. This is nearly a fourfold increase, an average yearly growth rate of roughly 13% for ten years. However, electrification of oil and gas is only one factor driving load growth in the region. 

ERCOT tracks customers and industries requiring large electricity loads. By 2030, roughly half of projected load growth in ERCOT will come from just four sectors: crypto, data centers, hydrogen and industrial users, and oil and gas. Oil and gas are the smallest contributor of the four, and data center driven growth is the largest. These companies are attracted to ERCOT’s high deployment of renewables, with the Far West region of ERCOT leading the market. Abundant clean energy has attracted tech companies and their data centers. Additionally, the existence of gas infrastructure and clean energy has helped make Texas a leader in announced hydrogen investment. 

While attracting and sustaining demand growth, high renewable deployment proposes challenges for the region. During the day when solar and wind are cogenerating at high levels, prices bottom out and curtailment increases. Conversely, at night and when wind is low, prices can skyrocket. Overnight imports have also increased to meet demand, putting newfound stress on key transmission lines. Moreover, as the load grows, overnight demand will also increase and the gap will widen, potentially bringing in greater volatility. Existing volatility within ERCOT has already helped the state lead the nation in battery deployment. 

As shown and covered by GridStatus Exports, battery developers are already taking advantage of the price swings to offload cheap, renewable electricity during peak evening demand—benefiting from high energy pricing and ancillary service provisioning. This has meant high prices and high-capacity deployment, yet consistent reliability in times of stress. Over time, greater build out of battery systems could mean that prices level off. Storage thus has the potential to offset the growing divide in net load in the region, and collocated batteries and renewables are increasingly a part of planned capacity. Ultimately, renewable deployment in the region has created numerous cascading effects in establishing and attracting additional load growth. 

Such unprecedented, concentrated growth puts immense stress on the grid. Growing rates of congestion and price volatility on a nodal basis in West Texas reflect competing demand and needed transmission investments. A recent ERCOT report found that of the ten most constrained points on the system from 2023 to 2024, 50% were in the Far West region of ERCOT—the location of the oil-producing Permian basin. This means roughly $350 million in congestion rent, the price premium generated by high congestion rates. However, because of this premium, planned transmission projects during the late 2020s are concentrated in the same region. It is unclear whether this build out will be enough to satisfy load growth through the 2030s. 

Load growth in West Texas helps to illustrate ongoing trends in US electricity markets. Renewables are cheaper and more common than ever before, in turn driving even greater adoption. Even oil and gas can’t deny this reality, by supporting electrification of infrastructure in the region. Yet, oil and gas are just one part of the load growth story—there are competing energy needs from data centers and manufacturing. These competing interests are coming together to create a wave of massive growth, requiring expensive, complicated grid investment. In response, the market has encouraged battery deployment and regulators have planned major expansions to the transmission system. 

Sources

ERCOT. (2024). “Large Load Growth”, Long Term Load Forecast. https://www.ercot.com/gridinfo/load/forecast

ERCOT. (December 2024). “Report on Existing and Potential Electric System Constraints and Needs”. https://www.ercot.com/files/docs/2024/12/20/2024-report-on-existing-and-potential-electric-system-constraints-and-needs.pdf

Golen, R. and Li, Y. (June 2024). “Permian Basin Reliability Plan Study”, ERCOT. https://www.ercot.com/files/docs/2024/06/28/Permian%20Basin%20Reliability%20Plan%20Study%20-%20Workshop%20-%20June%2028%202024.pdf

GridStatus Exports. (December 2024). “Breaking Down a Record-Setting Day in ERCOT”. https://blog.gridstatus.io/a-record-setting-day-in-ercot/

Jacobs, T. (September 2024). “Texas Orders Major Power Upgrades To Keep the Permian Pumping”, Journal of Petroleum Technology. https://jpt.spe.org/texas-orders-major-power-upgrades-to-keep-the-permian-pumping

S&P global. (March 2023). “Electrifying the Permian Basin”. https://www.ercot.com/files/docs/2023/03/17/Presentation%20to%20ERCOT%20planning.pdf

Smith, C. and Rao, M. (2023). “Electrifying the Permian Basin”, Unconventional Resources Technology Conference (URTeC) DOI 10.15530/urtec-2023-3859345. https://library.seg.org/doi/epdf/10.15530/urtec-2023-3859345

Spector, J. (May 2024). “How Texas became the hottest grid battery market in the country”, Canary Media. https://www.canarymedia.com/articles/energy-storage/how-texas-became-the-hottest-battery-market-in-the-country-energy-storage

Wilson, J.; Zimmerman Z.; Gramlich, R. (December 2024). “Strategic Industries Surging: Driving US Power Demand”, Grid Strategies. https://gridstrategiesllc.com/wp-content/uploads/National-Load-Growth-Report-2024.pdf