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
More Top Reads From Oilprice.com:
- Is This Oil Rally The Start Of Something Much Bigger?
- Texas Winter Storm Highlights The Importance Of Fossil Fuels
- What The Media Isn’t Telling You About Texas Blackouts