The competitive Texas electric grid proves critics wrong again

By Chris Tomlinson. Excerpts:

"Another blazing hot summer is another vindication of Texas’ cutting-edge electricity system.

Critics of Texas’ wholesale electricity market began the summer, as they did in 2018, fearmongering about brownouts and blackouts.

The problem, they claim, is that the primary grid operator only pays generators for the electricity they consume, doesn’t pay for backup generation and relies on federal tax credits to overbuild wind power.

They were wrong in 2018, and they were wrong again in 2019. Next year will be the summer of solar, and the risk will be gone.

By any estimation, the Electricity Reliability Council of Texas squeaked by this summer.

In May, ERCOT officials looked at the expected demand and how much generation would be available and found a reserve margin of only 8.6 percent. The grid operator prefers a 13 percent reserve margin, the cushion of extra generating capacity available for times of extreme demand.

On Aug. 12, Texans demanded a record 74,500 megawatts of electricity. Generators had less than 2,300 to spare, triggering an Energy Emergency Alert. The market then worked as intended.

The price of electricity, which averages $36 a megawatt-hour, hit the statutory limit of $9,000, inducing every available generator to put power on the grid. ERCOT and the Public Utility Commission alerted customers to the spike, encouraging them to conserve energy and their money.

Power supply and demand balanced within 30 minutes. ERCOT kept everyone’s lights on, the price of electricity dropped and the sun went down.

ERCOT declared another emergency three days later, this time due to unexpected generator outages. But again, the price spiked with no brownouts or blackouts, and the squeeze was resolved within two hours.

Average consumers missed out on the drama. They didn’t hear about the Energy Emergency Alerts, and most saw no change in the rate they pay for electricity, only a rise in their consumption.

Retail electricity providers, municipal utilities and electric co-ops shield most consumers by promising fixed rates throughout the year. They assume the risk of price spikes, and trade futures contracts to hedge their risk.

Consumers will benefit, though, from the tight market, because high prices and low reserve margins encourage generators to build and improve their power plants. More generation will lead to more competition and eventually lower prices for consumers."

"Texas is a global leader in perfecting competitive electricity markets. Many grids still operate old-fashioned utilities, where the government sets the prices and guarantees a private operator a profit. Other U.S. grids pay generators to remain on standby, which drives up consumer prices.

Our competitive market, though, makes people uncomfortable with its low average prices. Executives complain low prices force them to shut down old, inefficient plants. Consumers get upset when prices spike in the summer, signaling that more supply is needed.

Competitive markets, though, encourage the construction of the right kind of generation in the right places at the right time for the right price. Market-based capitalism made America great, and we should celebrate when it works."