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Texas blackouts show the real value of dependable energy

Last month, images of Texans struggling for days without power shocked viewers around the world, more used to associating the state with affluence and excess. Texas is not just rich, but rich in energy resources – wind, solar, natural gas, and coal – but its grid buckled under the strain of an unusual bout of extreme cold, as demand soared while available power generation fell.

The crisis has given an unusual amount of media attention to the peculiarities of Texas’s power market structure, which I reviewed last year as part of the IEACCC study ‘Market designs for a reliable grid’. Texas is unique in the USA for opting for an ‘energy-only’ market in which price signals from the wholesale energy market alone are expected to drive investment in new generating capacity; periods of scarcity are allowed to drive prices very high and, in theory, secure a decent profit for generators. This is in contrast to the use of capacity markets in other deregulated parts of the country, where generators are paid for being able to guarantee capacity in advance. On top of this, Texas has opted to remain relatively isolated from the rest of the US grid, so has much less ability to draw on power from the surrounding region in times of need.

Did this ‘free market’ approach play a role in the recent crisis? Usually, Texans are more concerned about periods of peak demand in the summer, when power consumption for air conditioning can soar. Summer 2019 saw the state fly particularly close to the wind, with reserve margins falling below 9% and some energy shortages experienced in August. Since then, the summer reserve margin has climbed to much safer levels, but largely due to huge additions of wind and (to a lesser extent) solar power: wind capacity is now close to 30 GW and provided 23% of the state’s generation in 2020. Determining the extent to which these intermittent sources can provide dependable generation is not trivial – both summer heat waves and winter cold snaps can be associated with little wind and, in the case of winter, very little sun. Although once a coal-rich grid, Texas has increasingly relied on gas generation for more dependable capacity, reaching over 45% of generation in 2020, while coal has fallen to 18%. But investment in new gas capacity has been sluggish in recent years, even as demand in the state has grown.

Nevertheless, the state should have had enough conventional power plants on the grid to deal with demand during the cold snap. Worst-case scenario forecasting by the grid operator ‘ERCOT’ assumes minimal contribution from wind. Instead, around 30 GW of generators – mainly gas, but also wind, coal, and nuclear – went offline due to a combination of cold-induced technical failures at plants (freezing pipes or instrumentation) and a shortage of gas supply. There was also a sizeable portion of plants undergoing scheduled maintenance over what is normally expected to be a quiet period.

The issue of gas shortages in cold weather has become a hot topic in the US over the last decade, particularly following another famous ‘polar vortex’ cold snap in 2014, which mostly affected north-eastern states. Unlike summer demand peaks, cold weather brings high demand for gas for both power and heating and, when combined with freeze-ups at wellheads and pipelines, can lead to astronomical gas prices and supply shortages for generators. Following the 2014 event, several north-eastern grids beefed up their existing capacity markets by requiring generators to prove their resilience to cold weather through steps such as securing alternative fuel supplies or long-term gas contracts. For some, these incidents demonstrate the value to the grid of coal and nuclear – which have much less vulnerability to fuel supply – leading to the proposed (but rejected) ‘grid resiliency pricing rule’ under the Trump administration.

Texas may not have a capacity market, but state regulators have made some efforts to improve mandatory winter-proofing of power plants and gas infrastructure following a near-miss cold-weather event in 2011. Much of the fall-out around the February blackouts has centred on why more regulation was not imposed, or why industry has resisted it. Northern regions prove that it is perfectly possible to make this infrastructure more resilient to extreme weather, but it will come at a cost, and perhaps one that is harder for generators to bear in an ERCOT-style market. Many gas turbines in southern states are not even housed inside buildings, helping raise their efficiency in the hot summers, but exposing them to the elements in winter.

Inevitably, backers of various energy sources have been quick to use the crisis to highlight the weakness of competitors – wind turbines can freeze, gas is vulnerable to shortages, even ‘dependable’ coal and nuclear were affected… However, the real message arguably runs deeper than this energy one-upmanship. Yes, thermal plant can be affected by cold, but adequate regulation and technical measures offer a ready solution. On the other hand, there is no question of relying on wind and solar to ride out such a storm. Ultimately, the grid will need to ensure that there is always sufficient ‘firm’ capacity to meet almost all the peak demand if necessary and this is challenging – particularly without recourse to a capacity market.

Advocates for renewables and the ‘energy-only’ market model often point to greater use of smarter energy grids with more opportunity for demand response, in which users can offer to reduce consumption for a fee. While this must surely form part of the future of electricity, it may have more limited use during winter shortages, when reducing consumption is not simply a question of turning down the air con. The other rapidly emerging option is the development of energy storage infrastructure, but again, the Texas event illustrates a taxing scenario for this paradigm. Delivering several days of unusually high demand would require an enormous quantity of stored energy – probably in some long-term form like hydrogen – as well as sufficient excess supply beforehand to build up this stock.

So, this crisis is perhaps a reminder that we are a long way from being able to entirely dispense with conventional power plants. Fortunately, Texas also offers a ready reminder of the potential of carbon capture and storage technology in cleaning up fossil fuel-based sources, with some of the world’s leading projects already operating in the state. As cold weather events are expected to become more frequent, there could still be a place for decarbonised coal power in a more resilient grid.

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