Texas has proven that a commitment to market solutions and diverse electrical infrastructure can be a recipe for success. Under the restructuring of the power market and initiatives like the competitive renewable energy zone, investment took off and energy prices fell. Texans have benefited from these developments, enjoying power prices that were $0.003 per kilowatt-hour below the national average from 2002 to 2017.
However, February’s extreme weather event demonstrates that more work is required if we hope to continue capturing the advantages of our innovative policies.
Never before has the state endured weather that pushed all 254 counties into a state of emergency. Even so, such an event was not entirely unpredictable. Similar events have occurred over the last century that could have, and sometimes did, lead to similar issues, including in 2011, 1989 and 1983.
Knowing this, Texans need an energy policy that will protect us against these extreme events that threaten to upend our daily lives. As the state continues to tally the costs of Winter Storm Uri, it is becoming apparent that smart investments now can safeguard us from catastrophe in the future, while also saving money in the long run.
With that in mind, our commitment to market solutions must leave room for such common-sense measures.
Below, we outline three areas for discussion and focus. In the wake of last month’s disaster, Texas has an opportunity to reinforce its position as a global energy leader, and blaze a trail for others to follow, by acting thoughtfully and intentionally to guide the evolution of our electric grid.
Climate protection for the grid
Teeing off last month’s issues was the fact that parts of Texas’ grid were simply not built to withstand sustained freezing temperatures and significant frozen precipitation. In particular, generation assets went offline at an alarming rate, leading to a shortfall in electric supply that forced tens of thousands of megawatts of customer load to be shed, leaving millions in the dark.
This did not need to happen.
Natural gas meets half of Russia’s energy needs, and the Ross Island Wind Farm has been operating in Antarctica since 2010. Clearly cold weather is not incompatible with our generating sources. Yet, nearly every power source we rely on, including nuclear, coal, wind, solar and natural gas, failed us. To prevent this from happening again, we need to take proactive steps to protect our grid from extreme weather.
This begins with weatherizing our generating fleet. Winterizing wind turbines with water-resistant coatings or heating elements that run on parasitic power is a simple solution to prevent freeze ups.
Similarly, insulating our critical natural gas infrastructure—from the power plants and instruments, to the pipelines and compressors, all the way to the wellhead—will help prevent the conditions that led to a shortage in power supply.
Better coordination between fuel suppliers, gas storage entities and pipeline operators can resolve many logistical difficulties that plants faced in receiving the fuel they needed to operate. And coordination between the electric and natural gas industries, as well as the regulatory bodies that oversee them, can keep these two interdependent systems operational in a crisis.
Texas built its grid for the heat, but extreme weather events of all types are becoming the norm across the state. Houston, for example, has experienced three 500-year flood events since 2015.
Accordingly, we must update our extreme weather risk models, so our system is prepared to handle the heat, cold and anything else Mother Nature sends our way. Retrofitting existing equipment will be expensive, but cost-effective when compared with the adverse impact of last month’s outage. Just as important is to ensure that new generating infrastructure is built to withstand all manner of extreme conditions.
Some would use the events of last month to push Texas toward a capacity market. This may or may not be good policy for Texas, but we should remember that we did have enough generating capacity to see us through last month’s storm; just not enough that worked under extreme conditions.
A first step, which the legislature should consider, is to provide for heightened regulatory oversight of our generating assets to ensure their ability to operate in extreme weather conditions. Capacity does little good when the underlying equipment cannot function.
Furthermore, Texans should call on the state to establish an Extreme Climate Commission, comprising stakeholders from all fields, including industry, business and academia, and various subject-matter experts. Their combined expertise can guide decisionmakers toward cost-effective investments under a cohesive energy policy.
Investing in storage technology
Today, few people think of battery storage as a utility-scale resource. But utility-scale storage is a nascent technology that is poised to transform the power industry. As battery prices have fallen sharply in recent years, technological advances have simultaneously enhanced storage capabilities, bringing us to a point at which storage is a viable grid solution.
Already, individual battery installations are being integrated into the global energy mix. In Monterrey Bay, California, the world’s largest utility-scale storage system has recently gone online. With a capacity of 300 megawatts, it can store enough electricity to power 300,000 homes for four hours. This power could be critical at times when generating capacity is temporarily down due to weather events or intermittency.
Indeed, integrating battery storage into the grid is imperative if intermittent renewables are to reach their full potential. Utility-scale batteries can store excess power when solar panels and wind farms are overproducing and feed it back to the grid when they are not. At a smaller scale, home battery storage can keep the lights on when other resources fail.
Moreover, a robust storage network can maximize the effectiveness of smart-grid solutions and programs, including load shifting, frequency regulation and demand response, contributing to overall grid stabilization. Investments in this sector have exploded recently as grid storage, electric vehicles and related technologies have risen to prominence. We should encourage our policymakers to do even more to promote these technologies.
Retail vs. industrialization of pricing
Many electric customers received a rude awakening as power bills came due following last month’s outage. In the Texas power market, electricity is sold at wholesale before being transmitted and distributed, then resold by retail electric providers to end consumers.
During the outage, the wholesale price of electricity rose to $9,000 per megawatt-hour. For context, the average price for all of 2019 was $38 per megawatt-hour. Those prices are meant to signal generators to produce power during scarcity situations, but instead they have worked their way into many customers’ energy bills. This has left consumers on floating market-price plans with bills in the tens of thousands of dollars, even as they went without power for days on end.
Despite pleas from retail electric providers and individual consumers, the Public Utility Commission of Texas has so far declined to retroactively adjust power prices, citing the potential that unforeseen harms to customers and other market participants could arise from such an action. Instead, the Commission has indicated a preference for prospective relief and coordination with the legislature.
On March 9, the governor formally submitted adjustments to February’s excessive power prices as an emergency matter to be taken up by the 87th Legislature, but to date, no specific plan has been forthcoming.
This has left many retail electric providers and some retail electric cooperatives on the verge of bankruptcy, and their customers in limbo, with no clear path for relief or accountability. Consumers should not be exposed to this kind of risk. That is why guardrails should be established, so that consumers with little knowledge of the wholesale power market are not left at the mercy of the hedging policies of individual retail electric providers or the good graces of future policymakers.
Few people spend time thinking about the electric grid until something goes wrong. The events of last month were devastating for so many Texans, yet they have also focused public attention on areas where our system is lacking. This will give rise to new opportunities for investment and policies that can prevent such a failure from happening again.
To protect our grid for future generations, we must continually improve our system with an eye toward resilience. This will require innovative thinking, investments in new technologies and a focus on climate protection. Texans already enjoy the benefits of a diverse and competitive power market. If we enact thoughtful policies to prepare our grid for the future, we can protect the market and market participants against future Black Swan events. This is where the market needs a minder.
About the authors: Keith Fullenweider is a partner at Vinson & Elkins and co-head of the firm’s corporate department. Michael Tomsu is a partner in V&E’s energy regulatory practice group. V&E energy regulatory associate Jared Jones also contributed to this article.