Yves here. The fallout from the Texas grid collapse during its deep freeze continues. The Texas independent energy market monitor Carrie Bevins has written the Public Utility Commission of Texas to recommend that $16 billion of charges by the grid manager Ercot be unwound because Ercot kept the $9,000 per megawatt hour price in place (versus a typical price of $25 a megawatt hour) for a full 33 hours after the power emergency was over. From the Financial Times:
Retroactively revising prices “is not ideal”, she [Bevins] said, but “allowing them to remain will result in substantial and unjustified economic harm”.
Such a move would require Ercot, which acts as a payment clearing house for the market, to claw back money already paid through its invoice settlement system, a process never carried out on anything akin to the scale that would be needed…
At a Texas Senate hearing on Thursday, Kenan Ogelman, Ercot’s vice-president of commercial operations, said the state’s wholesale power market was in “distress”. About $1.7bn of power bills were unpaid, a figure he said was likely to keep rising.
Brazos Electric Power Cooperative, the state’s largest and oldest power co-op, has been the largest casualty, declaring bankruptcy this week after failing to pay more than $2bn in bills it received from Ercot.
The market watchdog’s recommendation echoed warnings from many companies — both retail providers and generators that had to buy power on the wholesale market to meet supply commitments — of further bankruptcies to come.
Per reader Dan K: “Pro tip: when you turn off the autopilot, it stays off until you turn it back on.:
The erroneous charges exceed the total cost of power traded in real-time in all of 2020, said Bivens, who spent 14 years at Ercot, where she most recently was director of market operations before becoming its watchdog. “It’s a mind-blowing amount of money.”
While prices neared the $9,000 cap on the first day of the blackouts, they soon dipped to $1,200 — a fluctuation that the utility commission later attributed to a computer glitch. The panel, which oversees the state’s power system, ordered Ercot to manually set the price at the maximum to incentivize generators to feed more electricity into the grid during the period of supply scarcity. The market monitor argues that Ercot should have reset prices once rotating blackouts ended because, at the point, the emergency was over…
Bivens acknowledged the market monitor isn’t typically in favor of repricing, but noted in her letter to the commission that the move wouldn’t result in any revenue shortfalls for generators. Instead, the new price would reflect the actual supply, demand and reserves during the period.
Of course, there’s plenty of whining. Again from Bloomberg:
Texas Competitive Power Advocates, a trade association representing generators, said retroactively changing prices could discourage future investments in Texas’s electricity market. “Changing prices after the fact creates additional instability and uncertainty,” Michele Richmond, the group’s executive director, said in an email.
Recall that the widespread power outage knock-on effects hit Mexico. From Reuters:
The cold snap…knocked out power to more than 4 million people in Texas..It has halted about one-fifth of the nation’s refining capacity and halted nearly all oil and natural gas production in west Texas…
Texas’s outages also affected power generation in Mexico, with exports of natural gas via pipeline dropping off by about 75% over the last week, according to preliminary Refinitiv Eikon data.
One of the few upsides of this calamity is that it’s bringing more attention to the sorry state of the American grid, both its excessive “tight coupling” and the apparent lack of supply buffers.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
The blame game for the massive power outages in Texas last month continues. The dominant argument is that renewables had an ignorable part to play in the crisis, with natural gas and coal the indirect culprits due to their reduced availability resulting from infrastructure freezing and diverting supplies for heating purposes.
Yet what the real problem actually lies in, not just in Texas but everywhere where energy demand is growing, is grid reliability and resiliency.
“When it comes to the U.S. electrical grid, it is the largest interconnected machine on Earth: 200,000 miles of high-voltage transmission lines and 5.5 million miles of local distribution lines, linking thousands of generating plants to factories, homes and businesses,” Westhaven Power, a California utility, told Oilprice.
This is one massive system, and the sources that feed it electricity have become increasingly diversified. And while the shortage of natural gas was a big reason for the power outages in Texas, it was certainly not a shortage of gas that caused the blackouts in California last summer during a heatwave. Grid reliability has come to the fore because the decarbonization of electricity generation is not all fun, games, and zero-emission power.
The U.S. grid, as it is now, cannot support the massive shift to low-carbon power generation, Westhaven Power says. Operators need better control of regional grids to be able to anticipate dangerous situations like the ones in Texas and California, but obtaining it would become trickier with more intermittent wind and solar feeding the grid, the utility explains.
“What events in Texas and California demonstrate is the shortcomings of having highly-centralised power systems and the true value of resilience and flexibility in our energy grids, a value that is going to become even more vital as we continue to transition to renewable energy,” says Dr. Toby Gill, the chief executive of UK-based climate tech startup Intelligent Power Generation. Related: Debt Stricken Mexican Oil Major Pemex Scrambles To Boost Production
So what is there to do to reduce the risk of such occurrences in the future as the world—and the United States—moves inexorably towards a more renewables-heavy energy mix and, more importantly, as electricity demand booms.
The simplest and most straightforward answer is investments in strengthening the grid. Bloomberg’s Rachel Morison writes that global investments in grid infrastructure could rise to $28.7 trillion by 2050 assuming a triple increase in renewable power generation capacity and a 60-percent boom in electricity demand. These assumptions are quite safe: the drive to lower humankind’s carbon footprint is, in fact, a drive to electrify everything that can be electrified, so demand will increase as a consequence of that. How smart the “Electrify all” call is, however, is a different question.
“The risks for power consumers are rising as the typical home electrifies an increasing share of its energy consumption,” Sanjeet Sanghera, a BloombergNEF analyst, told Bloomberg’s Morison. “You are putting all your eggs in one basket.”
While it is one of the wiser rules in life that you should not put all your eggs in one basket, the dominant narrative among politicians seems to be that we have no other basket left but the electrification of everything. This means that we need to brace for the costs. Europe alone will need to spend $4.9 trillion on its grids, Morison notes, adding that as much as 45 percent of this investment will be used to strengthen the already existing infrastructure.
In addition to strengthening the centralized grid, there is also a solution in boosting the share of distributed power systems, according to experts. This would alleviate the consumption load on the grid, potentially reducing the risk of overloads and outages. It might also reduce—slightly—the size of investments that need to be made in new transmission infrastructure to connect new solar and wind installations to the grid.
“When our energy systems are pushed to their limits, through extreme weather changes as in both of these cases, and power generation sources are taken offline, the impact is felt at much greater scale,” IPG’s Gill told Oilprice. “If however, we have more segmented/distribution power sources, we lower our reliability on fewer large power sources, therefore reducing the number of towns and people affected when one or more of these go offline.”
“Reliability and resilience – even in the face of extreme events – is achieved through diversity, redundancy, and modularization. Co-locating energy supply with demand through microgrids and other DERs [distributed energy resources] is an important step in preventing widespread crises like this in the future,” according to Mark Feasel, Smart Grid president, Schneider Electric North America.
“In both cases [Texas and California], the strain could have been reduced with distributed resources, such as batteries and solar, as well as demand response tools, like smart thermostats with utility control,” says K.C. Boyce, vice president of human insights firm Escalent’s energy division. “However, Texas has limited distributed resources and demand response, and while California has lots of distributed resources, it doesn’t have a good way of coordinating those resources, nor does it really have demand response tools to call on.”
So, it seems that decentralizing the grid could go quite a long way towards reducing risks and ensuring a stable power supply. Of course, it will also cost money. But with the right incentives, this kind of investment might be more palpable for consumers than higher electricity bills because utilities are centrally strengthening the grid. In any case, one thing is clear, and it is that grids, as they are at the moment, will not be able to cope successfully with the changes in the energy mix.