The Texas Electrical Crisis – A Far More Complex Issue Than Politicians Portray
In a vigorous finger pointing exercise, both the left and right leaning political pundits, have vilified the performance of the Texas Public Utility Commission (PUC) and the Electric Reliability Council of Texas (ERCOT) during the extreme February 2021 winter storm that held the State of Texas in deep freeze mode for over a week and played havoc with the statewide electrical grid. The left leaning pundits have targeted thermal power (coal, gas and nuclear power sources) and the right leaning power sources have targeted renewable power sources (wind and solar). All of these entities (regulators and energy sources) played a role in the subject electrical grid failure. In their myopic finger pointing all of the political pundits failed to recognize another critically important guilty player, themselves. The underlying cause of the entire problem is far more complex than has been presented by the media and the pundits. The inability of critical portions of the electrical grid to handle the February 2021 freeze stems from capital investment signals and subsidies that were poorly structured years ago by both the Federal government and state regulators that did not account for a “100 year storm”. Rather than lay out the issues in long drawn out paragraphs the basic issues will be presented in an outline format followed by backup discussion.
1. According to ERCOT, out of 24,000 MW (megawatts) of available wind capacity, 16,000 MW were offline during the freeze., In other words 2/3 of the available wind capacity failed or were not available to meet demand. Given that solar generation was more negatively impacted than wind generation, their combined unavailability (renewable energy sources) would exceed the 2/3 figure for wind alone. Most, if not all of the off line wind and solar capacity during the February winter storm is attributable to the failure of the power source itself (total renewable outage was 18,000 MW).
2. Out of approximately 70,000 MW of available thermal capacity (coal, gas, nuclear) 28,000 MW were not available to meet demand (significantly less than 1/2).
3. The amount of Thermal capacity off line exceeded renewable outage by approximately 10,000 MW.
4. Typically gas and coal plants are cycled off line during the winter months for required maintenance which means that the 28,000 MW off line figure cannot be entirely attributable to plant specific failure. Note that the 28,000 MW figure has been presented as total off line capacity by ERCOT and by all of the energy gurus examining the ERCOT data. Note that none of these sources referenced the outage figures as strictly due to failure, which is a more relevant data point for critical analysis. The more accurate fraction (percentage) of available thermal generation off line at the time of the freeze due to failure is more likely less than 1/3 (33.3%).
5. Peak load within the ERCOT electrical grid is structured to be met primarily by gas generating capacity. Historically, this has been the case for many years, but prior to the push for renewable energy sources for electricity generation base load demand was met primarily by coal and nuclear power. A significant portion of the coal fired power plants in Texas during the 1970 -2000 period were lignite based where the plants were set at the mine mouth. Even though these power plants exhibited high outage rates due to maintenance requirements, they were not significantly subject to weather related failure and, consequently, did not present the issue of forcing intermediate and peak load capacity to replace base load failure.
6. There have been and still exist substantial tax credits and outright Federal subsidies that have made renewable sources of electrical power competitive with gas. The Federal thumb on the scales, however, via carelessly crafted subsidies, has distorted the natural free market distribution of goods and services and, consequently, the allocation of scarce resources. Note that even though various sources report different figures, the overall degree of disparity between direct Federal subsidies for renewable power and thermal sources is fairly consistent. Since 2010, direct subsidies for renewable energy sources have dwarfed the subsidies for thermal power sources. (For one reliable source, based on Energy Information Administration data, see https://blogs.ei.columbia.edu – enter in search box “You asked: How Much Does The US Subsidize Renewable Energy Versus Fossil Fuels”)
7. The cost of economic externalities such as pollution and atmospheric emission issues are the primary drivers of “global cooling, global warming, climate change, green new deal” agendas. The jury is still out as to the validity of the cost estimates generated by advocates on both sides of the discussion. 8. Regulation –Too much or too little is not the only question. Smart, simple mandatory regulation related to reliability that does not restrict free market forces must be the target with thoughtful, transparent information given to the public relating to the actual total cost of capital alternatives, subsidies (including externalities), etc.
Many of the Energy gurus in defense of renewable sources of electrical generation quickly point to the obvious and correct fact that there was there were more MW of thermal capacity off line during the Texas freeze than from renewable sources and that thermal plants were designated to handle most of the total load at that time. Their conclusions were clearly generated by a quick perusal of data in a partial analysis approach while ignoring the complex interaction of base load, intermediate load and peak load capacity during a peak load crisis. This type of partial analysis can be expected to result in faulty capital investment decisions intended to meet future increases in the demand for electricity.
Clearly, if thermal electrical generating capacity was off line during the Texas freeze at the same outage percentage as renewable capacity, the crisis that would have resulted would have made the actual occurrence seem like “a walk in the park”. Electricity generation from renewable sources has backed out base load coal fired power plants over the last thirty years as coal fired plants reached their retirement age. Massive subsidies for renewable power investment enabled the rapid replacement of coal generated electricity generation with wind generation. As a consequence, cold weather reliability has deteriorated. It is a questionable call, therefore, to lay the blame for the outage primarily on thermal capacity, because such a conclusion will give a false signal relating to the choice of future electricity generating capacity. Poorly structured subsidies for renewable electricity generation that did not mandate minimal guidelines related to reliability (including weatherization) were not the only culprit behind the outage failure on the part of ERCOT. They did, however, play a critical role. This issue cannot be ignored on both the federal and state level, given that politically driven subsidies will radically influence investment decisions. All subsidies given electrical power generation projects vulnerable to the whims of nature must include the mandate that subsidized generation sources account for events such as the Texas freeze (on a relevant regional basis). This includes the necessity of redundant power sources, not as subject to the whims of nature, to back up weather sensitive renewable sources.
Gas pipelines are particularly subject to extreme cold weather issues at exposed locations such as the well head and pumping stations. Allowing gas pipelines to shed their dependence on external electricity sources for any of their functions will place the entire responsibility for weather related issues on the pipeline company itself. Simple, but strict minimum weatherization requirements are appropriate and should be transparent and easy to enforce. Pipelines will then make the capital adjustments which will be reflected in the prices of their various goods and services. These resulting capital improvements should occur in a free market format with the entire cost of any upgrades being reflected in adjusted price signals.
Also, because of the regulatory priorities placed on gas suppliers and distributors, retail customers that use gas for heating must be first in line. I do not have precise or even approximate figures relating to the amount of gas fired power generation that was off line due to shortage of gas supply rather than the outright failure of the power plants themselves. Due to the dimensions of the freeze related outage issue, it is likely that a significant portion of the gas capacity outage during the freeze was attributable to shortages of gas supply rather than to plant specific failure. The weather reliability of existing gas power generation (based on actual failure rate) was substantially greater than renewable power generation and as discussed, and the proper weatherization of well heads and pumping stations will increase their availability during a crisis. Note that the weatherization of gas well heads and pumping stations will be borne by gas pipeline companies and gas powered electricity providers will face a modest increase in the marginal cost of natural gas.
Some of the issues related to the weatherization of wind turbines are also easily addressed, but at a high expense. The initial cost of a wind turbine properly designed to better handle the extreme cold as experienced in the Texas freeze is likely to be approximately 10% higher than the typical wind turbines that were operating in Texas at the time of the freeze. The cost of retrofitting the existing wind turbines in Texas can be expected to be significantly greater than the increased cost of properly weatherized wind turbines to begin with. Even with such weatherization wind power will never be as weather dependable as thermal power generation. The major complication related to decision making related to wind powered electricity generation relates to the substantial past and present Federal and state subsidies that have driven investment in wind power generation in recent decades. Without the past and existing federal and state subsidies afforded renewable power generation going forward, new wind power generation will be a far less attractive investment. The option of retrofitting existing wind turbines in Texas, unless heavily subsidized, will not likely be a financially viable option.
Improvements in wind power technology are coming, which will elevate the financial viability of wind power investment and make wind power less subject to the whims of nature. The very nature of wind power, however, like the wings of airplanes, will never be able to comprehensively handle all weather conditions. As we proceed to replace thermal base load power generation with wind and solar capacity, the necessity of significant power generation redundancy, not subject to the whims of nature, must be factored into future electricity power generation investment decision making. Failure to do so will virtually guaranty the re-occurrence of events like the Texas freeze. The actual increased cost of electricity attributable to subsidized renewable energy sources must be simply spelled out to all customers, without implicitly levitating an outrageously artificial externality cost
For advocates of the “global cooling, global warming, climate change, green new deal”, the argument for increasing the subsidies will continue to be compelling, but the “carbon capture” processes being developed and utilized by the natural gas and oil industry does, to a great extent, mute much of the environmental argument against the use of fossil fuels. Anticipated technological improvements should improve wind power’s financial viability, but in the immediate future the capital cost of wind power generation in Texas will be significantly higher. The “Texas freeze” has highlighted capital decision making issues relating to wind power generation in Texas and the complicated nature of properly formulated subsidies associated with that power source. The appeal of low marginal cost associated with wind power coupled the blind advocacy of “green new deal enthusiasts” will continue to elevate the oversimplification of the issues relating to the failure of ERCOT during the “Texas freeze”. Unfortunately, it is likely that agenda driven bureaucrats will continue to over subsidize renewable power sources for politically expedient reasons. Ideally, a paced replacement of thermal electricity generation by renewable power sources will occur, where rational subsidies are given to innovative and more reliable renewable power rather than to power sources that will still require redundant backup. Hopefully, a closer examination of the Texas situation will ultimately do more than just facilitate a lot of talking points by energy gurus of all stripes.
The critical decisions relating to the future expansion of electrical generation in Texas must address the appropriate design of subsidized options such that “thumb on the scale” pricing policies accurately address externalities and are not so politically driven that all consumers (both commercial and residential) are burdened with electricity prices that prevent businesses from being competitive with China, where new coal capacity is still being put on line without concern for the environment, and diminish the ability of middle and lower income residential customers to save money and build a nest egg. It is a shame that big government elitists, in the push for more and more governmental control of the distribution of goods and services, ignore the intuitive fact that higher electricity prices are regressive in nature. Hopefully, Texas a relatively free market state, will show the nation how to address future electricity generation options in a manner that accurately accounts for the cost of externalities and offers both commercial and residential consumers the lowest optimal price path over time.