Texas Governor Greg Abbott “lied on Fox News about renewable energy being the culprit in Texas’ blackout,” stated the business editorialist for the San Antonio Express last month. “If a snide tweet or a trash-talking appearance on a hard-right talk show could have done the trick, we’d have stayed warm last week.”

Check your premises, stay humble. Intermittent wind and solar power is a root cause of the Great Texas Blackout of 2021. Moreover, the great distraction of decarbonization (natural gas is bad too) and of climate change (warmer winters were expected by NOAA/climate models) brought out the worst in the scapegoated private sector.

Renewables, representing more than one-fourth of Texas’s generating capacity, all but disappeared at the peak. But there is a very important second part of the story: the tax-break-driven pricing of wind severely compromised the economics of existing and new natural gas and coal plants.

A news feature in the “Failures of Power” series at the Houston Chronicle, “High Risk, Low Reward Drives Shift from Power Generation” (March 14, 2021) tells the story. Here is what Marcy de Luna wrote (subtitles added):

The Paradox Stated

“How did Texas get to the point where more than half its electricity generation got knocked offline? The failure of so many power plants during the brutal winter weather that swept through Texas last month was perhaps years in the making, the result of a merchant power industry that has struggled to earn profits, satisfy Wall Street and keep the confidence of lenders and investors.”

The Answer: Bad Economics

“Lenders and investors have agreed. A major new power plant — excluding wind and solar installations — has not been built in Texas since 2017, when the Chicago company Exelon completed two 1,100- megawatt gas-fired power plants, according to the Electric Reliability Council of Texas, the state’s grid manager. One reason: financing for projects that can cost hundreds of millions of dollars has become increasingly hard to get.”

“‘There is a lot of uncertainty about how much profit gas plants can make year to year,’ said Travis Miller, an energy and utilities equity strategist at Morningstar Securities Research. ‘Investors typically don’t want to finance projects when they don’t have confidence the project can produce steady cash flows.’”

“The companies, meanwhile, have not just slowed or stopped investing in generation. They have sold off and shut down power plants to refocus on businesses with higher profit margins, such as retail electricity.”

‘Predatory’ Renewables Pricing

“Economic conditions have challenged power generators across the country as the higher costs of coal and natural gas compete against the falling costs of wind and solar energy. Perhaps nowhere has it been as challenging as in Texas, where massive amounts of wind-generated electricity can drive wholesale prices into negative numbers — in other words, producers pay buyers to take their power.”

“Unlike other deregulated markets that pay generators to keep plants ready to meet peak demand — whether they operate or not — prices provide the only incentives for companies to invest in building, maintaining and upgrading power plants.”

Central Planning Failure

“Texas regulators have responded to generators’ complaints that they were not earning enough to make these investments by raising prices, doubling the maximum to $9,000 from $4,500 [per MWh, or $9.00 from $4.50 per KWh] about a decade ago, and, in 2019, adopting price adders that allow generators to earn more when power supplies get short.”

“That has made power generation largely a seasonal business in Texas, depending on a few weeks of hot weather and high prices to earn profits. The difference of several degrees in summer temperatures can mean the difference between profit and loss, analysts said.”

“Those risks have soured investors looking for more reliable returns and put pressure on companies to deliver earnings to shareholders rather than reinvesting them in generation, analysts said. ‘It is very uncertain what return will deliver from one summer to the next,’ said Steve Piper, research director at S&P Global Market Intelligence. ‘It’s not hard to make a case that there are better uses of the capital than putting it into the power plants where the return might not be there.’”

“‘It has become clear over the last 10 years or so that Wall Street has been a little less interested in companies with wholesale (power market) exposure,’ Piper said. ‘This is certainly true for power plants within ERCOT. Their market mechanism doesn’t really deliver a reliable return to new generation.’”

“The rise of renewable energy has also eroded the weather-based business model on which generators have depended. The peak pricing on scorching summer afternoons in Texas occurs less frequently as wind and solar power generate more electricity to meet the soaring demand. The expansion of solar power could further cut into the peak pricing periods on which generators have relied. Solar produces the most electricity on hot, sunny afternoons when power is needed most.”

“In the last 13 years, the generation mix on Texas’ power grid has shifted toward natural gas and renewables, with wind making the greatest gains.… Those gains came mostly at the expense of coal, whose share of generation fell to 20 percent from 38 percent during that period…. Vistra Energy, parent company of the generator Luminant and retail electricity provider TXU, cited competition from lower-cost renewables and natural gas in 2018 when it shuttered three of the state’s largest coal plants, retiring a combined generation capacity of more than 4,000 megawatts and eliminating about 850 jobs.”

The quotations above are first-party verification of the why-behind-the-why. It gets beyond the first draft of history that simplistically blamed the Texas debacle on freak weather and bad corporate decision-making, chiefly involving natural gas.

The second draft of history is pointing toward a massive government planning failure in America’s second most regulated industry (next to money & banking), as well as the intended and unintended consequences of pro-renewable, anti-fossil-fuel decarbonization policies. There is much more evidence to come, but the picture is getting clearer.

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