By Kelley Green, Texas Cotton Ginners’ Association
We have all seen the news reports and many of us experienced first-hand the power outages that plagued Texas earlier this month. The news is now full of stories about the partial failure of the Ercot grid, and the lawsuits are being filed. Several bills have been filed this week to address the problem, and several Ercot board members have resigned.
The Ercot grid is the only single state grid in the United States, and up until now had been considered a model for an efficient open market system. The experts are working to figure out exactly what went wrong, but the most important question after that is what do we do to fix the system?
To better understand the overall picture, we must have some background on Ercot. Ercot is totally contained within the State of Texas and has very limited interconnection with the other grids. The rest of the country is in one of two other interconnected systems, called the Western Interconnect and the Eastern Interconnect. There are multiple Regional Reliability Councils and Electric Power Markets in the US. Ercot is one of these. Ercot does not cover all of Texas. The Lubbock area, for example, is in the SPP. SPP services all of Kansas, and parts of Oklahoma and New Mexico. The area around Beaumont is in the MISO, and El Paso is in the Southwest with Arizona and part of New Mexico.
Within Ercot, there are different rules depending on whether you are a Cooperative power company, a Municipal (City-owned) power company, or a private company. All of the private companies in Ercot were required to go to competition over 20 years ago. In the open market, the generators are owned by one group, and the power lines are owned and operated separately. In the Cooperatives within Ercot, the power companies are typically owned by regional cooperatives, and the local cooperatives own the lines.
The private ownership of generation has led to better competition in the generation market, and we have seen private groups building newer and more efficient generation systems. Power is bought on the open market much like other commodities – you can lock in long term prices and hedge your risks, or you can opt into the instant, or real time, market, which is very volatile. Ercot operates a “demand response” smart grid. In this system, as the load increases, the prices offered to the generators on the short-term market increases, which incentivizes additional generation to come online.
The spot market for electricity went off the charts during this winter weather event, and we will be hearing a lot more about that as the final numbers start coming in. An important part of the TCGA aggregation program, which has been in operation since the start of competition, has been to ensure that contracts used by this program contain fixed pricing that will not be impacted by this type of weather event.
So why did so many generators go down during this last storm? I don’t know that there was one particular reason, but there were likely several factors. To put the scale of the shutdown in perspective, we lost about 30 MW of the total estimated 82 MW available generation capacity. Our load hit a peak of 65MW on February 15. A typical high for the summer months would be more like 75MW. So, there is enough generation out there to have met the load.
Here are my thoughts on some of the factors: The open market generators must meet certain standards, but they are not required to operate like the old, regulated power plants were. They do have to deliver the power they have sold. In addition, we have seen our generation mix change over the years. Most new generation built is now wind energy, mainly due to the federal incentives available to build this type of generation. In addition, we have seen more and more of the old coal plants shut down, and a general increase in the amount of natural gas generation in the mix. The old natural gas plants all had backup fuel on site. It was typically diesel. I do not know if all the new plants are equipped with backup fuel, but I suspect not.
We have seen several instances in the past where the generation available was not adequate, but nothing of this scale. There have been many discussions in the last few years about the amount of generation available, and about what the State could do to incentivize more plants to be built. Most of the plants make their money by selling in volume. There are a few out there that wait for the spot price to get up to a high level before they start operating. These are the peaking plants. I think one of the issues is that it is one thing to incentivize someone to operate a plant for a few hundred hours per year, but it is something entirely different to incentivize someone to keep a plant available for operation every few years.
The Ercot grid typically peaks in the Summer. During this time, the natural gas plants will run at high rates to keep up with the demand. During this cold spell, the natural gas heaters in homes and offices were running at full capacity as well. This essentially doubles up on the load that the natural gas system must provide. I have not seen any stories about this, but I am guessing that some of these natural gas fired generation plants could not get enough gas delivered to keep operating. In addition, the extreme cold likely affected the ability of the natural gas system to run at full capacity. If the natural gas plants did not have backup fuel available, then they had to shut down.
We know most of the wind generation shut down, but that is less of a surprise. There are plenty of hot, still days in the summer where the same thing happens. Another issue that I suspect played a role is that a lot of the generation plants use the winter to do their maintenance. There were likely a number of plants that had been taken out of service for this purpose.
After this experience, I think it is likely that the state will direct the PUC to put some sort of incentive into place to have generation capacity available, even if it is not operating. We will also likely see improvements in the cold weather hardening of the generation fleet. The real question is how much will the generators do, and how much will it cost?
We have also heard about the idea of inter-connecting to the rest of the grid for reliability. This is certainly possible, but it is also a cost factor, and there is concern that an interconnection will open us up to federal regulations. Inter-connection is likely not the ultimate solution. California is in the Western Interconnect; they have all kids of power constraints. During this winter storm, several of the states which surround Texas were also having outages of their own, so it is unlikely that we would have gotten power from the surrounding states.
One interesting question that I have heard is why did the outage not actually rotate in some areas, while it did rotate in others? In Austin, some never lost power, and some lost power for seven or eight days. There should have been a better system in place by the local utilities to be sure the outage would rotate properly. Some of the lack of rotation was due to power line damage, but not all of it was.
The last part of this has to do with the severity of the storm. It is one thing to have things planned for the worst-case normal weather event, or even for a ten-year weather event. It is a harder thing to plan for the 30- or 50-year weather events. There is a balance between having a reliable system which is also affordable. One thing is for sure – we will see a lot of discussion about our power grid in the coming weeks and months. Hopefully, we will be able to find some good solutions to improve the overall reliability of the system while keeping the system affordable.
