What Went Wrong?

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By M. Ray Perryman

THE ECONOMIST

What went wrong with the Texas power grid during the recent extreme weather event? Everything – but it’s complicated.

One key issue is that Texas homes, buildings, and power infrastructures are geared toward dealing with the issue that we most often face – heat! Whether for an individual homeowner or a society, the decision regarding how much to spend on protecting from cold involves an assessment of the costs, benefits, and likelihood of extreme weather.

As the recent historic freeze blanketed Texas, about 40% of generation capacity went offline as demand surged. Wind turbines froze and stopped working. Natural gas-fired generation initially increased (as did coal), but weather ultimately caused issues with these facilities as well. Some gas wells and pipelines were affected, and generators, which often purchase gas through “interruptible” contracts, were competing for supply with the natural gas directly used to warm about 35% of Texas homes. Given the vast resources in the state, a natural gas shortage is particularly difficult to stomach. Moreover, turbines, conventional power plants, gas wells, and pipelines routinely function under frigid conditions elsewhere, but winterization practices in Texas were clearly insufficient.

Another issue is that much of Texas is an “island” when it comes to its power grid, not connected to other parts of the country. The Electric Reliability Council of Texas is tasked with ensuring peak demand can be met, yet the grid was apparently minutes away from catastrophic failure. The state certainly has the energy resources to meet its needs many times over but choosing to go it alone brings a responsibility to set up and assure a secure power system.

Placing all blame on wind energy ignores the benefits in the form of both zero emissions and lower electricity prices for Texans during much of the year. Hydrocarbon-fueled generation plants are also not the culprit, and they will remain essential to ensuring adequate capacity until at least the point when the power supply storage limitations are fully resolved. When the wind isn’t blowing and the sun isn’t shining, renewables are not producing power, and conventionally fueled generation must be sufficient to meet demands.

Texas’ relatively more competitive power market has fostered lower prices than would otherwise have been in place and more choices for Texas consumers (we have studied this issue several times). However, the recent problems have clearly illustrated some shortcomings with the structure that must be addressed.

When the historic freeze led to an all-time peak winter power demand, the grid was not up to the task, and millions of Texans suffered. Pointing fingers isn’t helpful, but better oversight and thoughtful tweaks to the current market platform can help to prevent another cataclysmic failure (more on that later). Stay safe!

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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 2,500 clients over the past four decades.

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