On March 24, 2025, the Texas Senate passed Senate Bill 388 setting a legislative goal that 50% of all new power plant capacity in the Electric Reliability Council of Texas (ERCOT) power region be sourced from “dispatchable generation” (e.g., coal, natural gas and oil). This bill has significant implications for power generation companies primarily focused on the development of renewable energy projects in Texas.
Notably, the bill exempts companies that exclusively operate battery energy storage systems from the dispatchable power generation requirements.
The bill would require the Public Utilities Commission of Texas (PUCT) to (i) set dispatchable generation requirements for power generation companies, municipally owned utilities and electric cooperatives on the ERCOT grid, and (ii) establish a program through which such entities would buy dispatchable power credits to cover any deficit in dispatchable generation capacity under such entities’ ownership or control. As such, power generation entities in Texas could comply with the bill through the production of their own dispatchable generation and/or through the purchase of credits under the PUCT’s new program.
The bill directs the PUCT to activate the credit trading program on or before Jan. 1, 2027, if it “determines that dispatchable generation may provide less than 55% of all new generating capacity installed in the ERCOT power region after January 1, 2026,” in which case developers whose projects are less than 50% dispatchable would have to buy credits from other companies building dispatchable resources. Given the lack of dispatchable generation in the ERCOT interconnection queue this year — approximately 7% to 10% according to some estimates — it is likely the PUCT would determine that activation of the credit trading program is necessary.
If the PUCT does make such a determination on or before Jan. 1, 2027, then, within 180 days of activation of the credit trading program, the PUCT would be required to calculate the dispatchable generation requirements for each entity necessary for it to be in compliance with the 50% threshold and create compliance regulations and noncompliance penalties. ERCOT would be responsible for creating a tracking system to award dispatchable generation credits to new dispatchable generation facilities that meet eligibility requirements and overseeing the program.
The bill seeks to prioritize traditional generation methods such as natural gas, coal and nuclear power within the ERCOT energy marketplace and will likely cause a reassessment of investment strategies in generation portfolios in Texas. Retaining legal counsel with a nuanced understanding of operational compliance within ERCOT will be vital for companies looking to bridge the gap between renewable and traditional generation projects and operate within the new regulatory scheme created by the bill.
Earlier this month, the bill was referred to the State Affairs committee in the House but has yet to be scheduled for a hearing. While it is potentially up for a vote sooner, the deadline for the bill to leave committee is May 24. If voted favorably out of the State Affairs committee, the committee will need to file a report on the bill and the bill would need to be referred to the Calendars Committee and be brought to the House floor before the end of the 2025 Texas Legislative session, June 2. Whether Gov. Greg Abbott will sign the bill if it passes the House remains unclear, but the governor has demonstrated support for both dispatchable and nondispatchable power generation and advocated for an “all-of-the-above” energy approach in Texas.
