Electricity specialists at the University of Texas at Austin recently revisited the Great Texas Blackout of February 2021. The op-ed, “Two years after its historic deep freeze, Texas is increasingly vulnerable to cold snaps – and there are more solutions than just building power plants” (The Conversation), spreads the blame and recommends more government planning, not less.
The authors want to let wind and solar continue to “saturate” the market and regulate (via “smart meters”) usage in your home and business to save the grid. But this is a recipe for intrusion, inconvenience, hassle, and conflict. And it neglects the logical alternative of denationalizing (privatizing) the state’s power grid to create the right incentives for the provision of reliable, affordable electricity.
As it is now, the governmental Electric Reliability Council of Texas (ERCOT) manages the wholesale grid, covering 90 percent of the state. Power-in, power-out is governed by 1,500 pages of rules and regulations—with more coming if the “experts” and “planners” have their way.
Politically Correct Misinterpretation
“As energy researchers based in Texas, we have spent much of the past two years analyzing why the state was so unprepared for this event and how it can do better,” the study begins. Michael Webber et al. continue:
A common knee-jerk reaction to disasters that cause widespread power outages is to call for building more “firm” power plants – those that use fuels like coal or natural gas and are designed to deliver power at any time of day or night. But coal and gas plants, and their fuel supplies, can fail spectacularly.
We think it is important to think beyond just building more power plants. Our findings spotlight other solutions that can be cleaner, cheaper and faster to put in place.
The “cleaner, cheaper and faster” policy is ultra-prescriptive, inside-the-walls demand-side management programs (to be determined). Something is amiss in this engineering world where humans, as Adam Smith warned centuries ago, are just “different pieces upon a chess-board.”
The authors claim that the to-be-accommodated political energies—dilute, intermittent, and thus noncompetitive—are somehow cheaper: “Rapid growth in wind and solar generation in Texas has saved the state’s consumers billions of dollars while making a lot of money for rural landowners and local governments.” But U.S. taxpayers are paying part of the wind/solar bill, and all state residents pay a monthly fee to cover the cost of $7 billion CREZ transmission system built for renewables. Then there are local and state tax favors.
It is back to the soft energy path of Amory Lovins of the 1970s. Replace reliable, consumer-chosen, taxpayer-neutral electricity with weather-dependent ones. Tighten the usage screws to cover up for supply-side gaps and unreliability.
Renewables Were the Culprit
The politically correct interpretation dodges the hard questions and avoids the analysis needed to get to the underlying causes of the worse electricity disruption in history. The central error is concentrating on the data without understanding the “why.” What happened in February 2021 was a long predicted “perfect storm.” It had precedents in the winters of 1989 and 2011 and should have been anticipated and overcome.
The statement “coal and gas plants, and their fuel supplies, can fail spectacularly” ignores incentives and opportunity cost, Economics 101.
Here is the reason and the answer, with quite different policy implications: the unreliables caused the underperformance of the reliables. As I explained nearly two years ago in “Renewables ‘Market-Failed’ Natural Gas in Texas”:
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.
I cited a Houston Chronicle story, “High Risk, Low Reward Drives Shift from Power Generation” (March 14, 2021). That story asked: “How did Texas get to the point where more than half its electricity generation got knocked offline?” What those in the industry knew (but outside “experts” do not seem to want to know) was unveiled in this one simple article:
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.
And why did the reliable plants become unreliable?
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 sum result:
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.
Phantom capacity—early retired gas and coal plants and would-have-been new capacity—was missed at a most crucial time. Poorly maintained capacity was another consequence from ruined margins from government-enabled, low-marginal-cost wind and solar. There were other reasons (here and here)—pointing toward government, not free markets.
Unreliable capacity that never should have been built crowded out the reliables—as intended by “magical thinking” policymakers. Storm Uri was not the straw that broke the camel’s back, it was the moment that showed the animal’s back was badly broken.
The way forward is the opposite of what the UT-Austin authors recommend. Wind, solar, and batteries should no longer receive government advantage. The wholesale power grid now run by ERCOT should be denationalized and mandatory transmission rules rescinded. Third, franchise protection and other “public utility” regulation should be removed for the denationalized grid, a program outlined elsewhere.
Central planning for a forced energy transformation produced the debacle of debacles two years ago in Texas. It is time for a new era for U.S. electricity policy premised on market entrepreneurship.