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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Who’s To Blame For The Texas Power Crisis?

Our last report focused on the uniqueness of the Texas wholesale electricity market, ERCOT, and how it was specifically designed to evade federal utility regulation. And as if he were our paid spokesperson, former Texas governor Rick Perry stated publicly that Texans were happy to suffer blackouts and other hardships if it meant evading federal regulatory scrutiny. Whether the good (and shivering) citizens of the Lone Star State agree is another matter. But today, instead of dealing with politics, we’ll take a closer look at ERCOT as a state planning agency.

First the good news. One of the hardest parts of every planning agency’s job is correctly estimating future demand. This is doubly hard in a dynamic, fast growing economy like Texas. Consequently we were surprised at how good their planning estimate was for this winter’s electrical load of about 67,000 megawatts. Because of the blackouts we can’t precisely know what peak electrical demand in Texas would’ve been given the extreme winter demands from home heating and the like. But the shadow estimates published by ERCOT suggested about 72,000 megawatts of peak demand.

In total, ERCOT has the ability to supply electrical capacity of about 80,000 megawatts. This amount of available electric power generation should have been adequate to meet demand this week. Not by a wide margin but adequate. Barely. As an aside we should point out that ERCOT runs “light” in terms of electric system reserve capacity with reserves typically about 8%. This compares with other US grids where targeted reserve margins are about 15%. Lower reserve margins are cheaper but mean less back up for emergencies. Related: Biden’s Energy Plans Threaten Alaska’s Oil Ambitions

Our first tentative conclusion is that Texas would have withstood this recent snowstorm and polar vortex event in pretty good shape from a grid perspective IF thermal plants were available to meet skyrocketing demand.

Let’s briefly talk about the second big thing ERCOT planners also got right, or close to right—the amount of available electricity generated by wind turbines in Texas. There are about 20,000 megawatts of electric wind turbine capacity in state. And this sounds superficially like a lot. But wind as our readers know is an intermittent generating source. And it is not particularly windy in Texas in mid-February so the planners estimated that only about 6,000 megawatts of wind would be available This is approximately one third of the installed wind capacity and less than 10% of the projected ERCOT daily electrical system capacity. This tells us that the ERCOT planners correctly viewed wind power as just not that big a deal in Texas in winter.

Of the 6,000 expected megawatts from wind, 4,000 megawatts were actually available this week to reap insanely high wholesale prices. (One facilities operator noted that prices this week repaid a large portion of the entire capital costs of their entire wind farm project. This is akin to purchasing an expensive automobile and winning the lottery the next day to pay it off. Perhaps cool but nonetheless unusual.) Bottom line: did wind underperform the expectations of planners? Yes by about 2,000 megawatts. Was this a big deal in terms of the Texas outages? No, because the total power system shortfall approximated over 30,000 megawatts. Wind was only responsible for 2,000 megawatts of that deficit.

What ERCOT planners got colossally wrong was the availability of their fossil fleet. They assumed almost all of it would be available this week. From an electric generating perspective, Texas is predominantly a natural gas and coal fired state with a few nuclear plants. All those thermal units together comprise about 75% of the state’s electrical generation. Together with wind, ERCOT, at the height of their weather emergency, could only cobble together about 40,000 megawatts vs approximately 70,000+ megawatts of system demand. This extreme level of supply/demand mismatch is why there was a near total system blackout. The gas and coal plants failed and even one unit at the South Texas Nuclear Project Unit tripped offline due to a cold weather-related instrumentation malfunction.

Now on to what ERCOT planners got half right in our view. First, there are two types of power plant outages: planned outages for thorough out of season maintenance and unplanned outages typically due to equipment malfunction. In a summer peaking electricity system like Texas it would be normal to have power plant operators engage in routine, extensive maintenance primarily in the winter when demands on the system are typically decreased. (Unfortunately for ERCOT managers the last week was anything but typical.) A portion of their gas fleet was unavailable for this reason. That’s the way it’s supposed to be in a summer peaking system. We’ll give the ERCOT planners partial credit here. Related: Oil Prices Soar As U.S. Oil Production Plunges 30%

Whether these gas plants with planned maintenance outages could’ve been quickly restored to service as the weather outlook deteriorated will no doubt be determined. In addition, Texas’s second line of electricity defense, coal fired plants, also failed to perform as expected. Coal piles, several months worth of stored coal on site at the power plants, froze into unmanageable carbon boulders and rendered much of the coal fleet inoperable.

But to us this in a way is the really good news here. Why? Ask yourself a simple question. Are there places where natural gas, coal and nuclear plants operate quite well in colder climates. The answer is of course, yes—all around the globe in fact. We assume that whatever engineering and maintenance expertise that permits successful cold weather power plant operation can be brought to Texas. And from a financial perspective this does not even seem that big of a lift.

But there is always something. And it has to do with the notion of system resilience. Texas is highly dependent on natural gas and the related infrastructure for two vital things—residential home heating and wholesale electricity production. In extreme situations, residential heating gets precedence over power generation which sounds nice. But as our readers know, a gas furnace doesn’t work without electricity (although sometimes sadly a gas stove does.) These two systems are completely interdependent.

Second, the gas distribution network—which also failed— uses electricity to distribute gas through its system of pumps and motors. When the electric system goes dark there’s no power for gas distribution either. Not to mention water pressure. Pressures drop and systems fail. This is not a resilient energy system. It is “fragile” in philosopher N. Taleb’s terms, the exact opposite of what people should expect here. This is not a problem we believe people will talk about because it is very difficult and expensive to remedy. Sadly for many politicians it is much easier to prevaricate and blame the wind turbines. This is the energy equivalent of what the pundits call “hippie punching”—that is bad outcomes are always due to progressive initiatives.

Energy systems are complex to say the least. There are at least five key variables for all electric system planners to manage: reliability, cost, pollution remediation, social equity and resilience. And these issues are being taken up under circumstances of heightened politicization. We don’t want to put too fine a point on it but as presently constituted, the Texas state legislature would come down on the wrong side of the Scopes trial. There is no reason for optimism if difficult, but science-based decisions are required in highly ideological environments.

By Leonard Hyman and William Tilles for Oilprice.com

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  • David Mayfield on February 19 2021 said:
    Gigawatts?
  • Suqi Madiqi on February 20 2021 said:
    "For the last decade+ policy in TX and in the US has been focused on mandating or subsidizing as much wind and solar as possible. TX has bragged about being the biggest wind generator in the US.1
    The TX focus on wind has come above all at the expense of coal, which has the resiliency advantage (along with nuclear) of being able to store large quantities of fuel onsite; gas mostly requires "just in time" delivery from pipelines.
    “In 2009, coal-fired plants generated nearly 37 percent of the state’s electricity while wind provided about 6 percent. Since then, three Texas coal-fired plants have closed...In the same period, our energy consumption rose by 20 percent.”2
    Because intermittent wind and solar can always go near zero--as we saw recently in TX--they don't replace the cost of reliable power plants, they add to the cost of reliable power plants. This is why the more wind and solar grids use, the higher their electricity prices.
    To lessen the price increases from "unreliables" governments try to get away with as few reliable power plants online as they can get away with. TX is no exception. The Public Utilities Commission of TX has called their grid's margin for error ("reserve margin") “very scary.”3
    Additionally, the expense and distraction of accommodating "unreliables" takes away money and focus from resiliency. In CA this meant not maintaining power lines. In TX it may have meant not focusing enough on making the reliable power plants resilient enough to winter weather.
    While we don't know yet what exactly caused certain gas and coal plants to go down--lack of resilience for those plants, grid mismanagement, or fuel infrastructure--we know with 100% certainty that gas and coal plants can easily run in far more adverse conditions than TX has now.
    We know with 100% certainty that gas, coal, and nuclear plants can easily run in far more adverse conditions than TX has now. And we know with 100% certainty that even if no wind turbines had frozen they would have been nearly useless during large portions of recent weather.
    If you are looking at the facts in TX, the obvious lesson here is: stop subsidizing and mandating unreliables--which are often useless when you need them most--and do a better job at managing reliables.
    Instead of acknowledging the reality that unreliables can't keep us warm or powered in the winter--and that the "100% renewable" direction is disastrous--advocates of unreliables are instead implying that no source of electricity can be relied upon, so no need to single out wind.
    Dr. Emily Grubert of GA Tech writes: "Let us be absolutely clear: if there are grid failures today, it shows the existing (largely fossil-based) system cannot handle these conditions either." Really? Ever heard of the Midwest or Canada?4
    We know how to produce enough low-cost, reliable electricity for every situation. You just build a whole bunch of reliable power plants, including those with on-site fuel storage--such as coal and nuclear. You place a premium on reliability and resilience. That's it.
    TX is having an electricity crisis during bad winter weather because it did not focus enough on building reliable power plants and infrastructure--because it was obsessed with getting as much unreliable wind/solar electricity as possible. Let's all learn from this mistake.

    Right now TX's plans include:

    0 new nuclear plants
    0 new coal plants
    9.4 GW wind (the existing 32 GW went to 1 GW during crucial times this week)
    11.9 GW solar (solar was useless much of the week)
    5.0 GW gas (to handle the unreliables)
    These plans should change.5

    As bad as TX's plans to "rely on unreliables" are, they are nothing compared to the Biden Plan, which calls for nearly 100% solar and wind electricity by 2035! Everyone should be asking him how the hell his plan would have fared in TX this week.6
    TX and America need to totally change direction in energy policy toward one of energy freedom, including freedom for the wonderful but demonized and criminalized ultra-reliable, non-carbon electricity source known as nuclear.7"

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