These large events are rare but with high, disruptive costs, e.g. As is indicated by events of this past week, Texas, as well as some of our southern neighbors are not prepared for these Green Swan events. The issue is at hand is extreme weather conditions.
The most recent ERCOT reports on generation adequacy indicates a reserve margin of 15.5% and increasing considerably over the next several years. With Texas’ history of power generation development, there is typically plenty of power available to homes and businesses in the state under blue-sky conditions. This evolution can be seen on the ERCOT Interconnection Dashboard developed by HARC, the Houston Advanced Research Center. The state has seen significant growth in low-cost energy resources, namely wind, with increasing investment in solar. Let’s be clear, the market has worked on many levels. The state of Texas is the only state without these standards and without standards the likelihood of generators taking the necessary action is low. The PUCT and our policymakers have not adopted resilience standards for our electric power utilities. (The impact on consumers is the subject of another future post.)Ĭommissioners were also looking to open an investigation into what happened, which is obvious. The pricing mechanism was designed to promote investment in generation based on hours of summer peak energy use, not four days of peak energy demand. A good number of the REP’s cannot pay the $9,000 MWh wholesale price for power over several days and remain solvent.
First, they were trying to figure out how to handle the oncoming tidal wave of retail electricity provider (REP) bankruptcies. The three commissioners had two areas of discussion. At this meeting, they were trying to figure out different responses to Winter Storm Uri. One of the key responsibilities of the PUCT is to regulate and oversee operations of our power infrastructure. I was listening to the emergency Public Utility Commission of Texas (PUCT) hearing last Friday night, February 19th, after just getting power back on at my house.
The market structure promotes under-investment to ensure a low pricing environment.
The unfortunate outcome of this race to the bottom is that there is minimal investment in our power infrastructure. Additionally, the low price of energy and minimal regulations add another arrow to Texas’s quiver in its bid to be a business-friendly state. This is why Texas usually has some of the lowest power prices in the United States. Rather, it is a race to the bottom by generators to provide the lowest-priced power, improve efficiency, and ensure cost reductions. Winter Storm Uri has plainly shown that the state of Texas has developed an electric power system that does not prioritize infrastructure resilience.