"The story from some media sources is that frozen wind turbines are
responsible for the power shortfalls in Texas. Other media sources
emphasize that fossil fuel resources should shoulder the blame because
they have large cold induced outages as well and also some natural gas
plants could not obtain fuel.
Extreme cold should be expected to cause significant outages of both
renewable and fossil fuel based resources. Why would anyone expect that
sufficient amounts of natural gas would be available and deliverable to
supply much needed generation? Considering the extreme cold, nothing
particularly surprising is happening within any resource class in Texas.
The technologies and their performance were well within the expected
bounds of what could have been foreseen for such weather conditions.
While some degradation should be expected, what is happening in Texas is
a departure from what they should be experiencing. Who or what then is
responsible for the shocking consequences produced by Texas’s run in
with this recent bout of extreme cold?
TRADITIONAL PLANNING
Traditionally, responsibility for ensuring adequate capacity during
extreme conditions has fallen upon individual utility providers. A
couple decades ago I was responsible for the load forecasting,
transmission planning and generation planning efforts of an electric
cooperative in the southeastern US. My group’s projections, studies and
analysis supported our plans to meet customer demand under forecasted
peak load conditions. We had seen considerable growth in residential and
commercial heat pumps. At colder temperature these units stop producing
heat efficiently and switch to resistance heating which causes a spike
in demand. Our forecasts showed that we would need to plan for extra
capacity to meet this potential demand under extreme conditions in
upcoming winters.
I was raked over the coals and this forecast was strongly challenged.
Providing extra generation capacity, ensuring committed (firm)
deliveries of gas during the winter, upgrading transmission facilities
are all expensive endeavors. Premiums are paid to ensure gas delivery
and backup power and there is no refund if it’s not used. Such actions
increased the annual budget and impact rates significantly for something
that is not likely to occur most years, even if the extreme weather
projections are appropriate. You certainly don’t want to over-estimate
peak demand due to the increasing costs associated with meeting that
demand. But back then we were obligated to provide for such “expected”
loads. Our CEO, accountants and rate makers would ideally have liked a
lower extreme demand projection as that would in most cases kept our
cost down. It was challenging to hold firm and stand by the studies and
force the extra costs on our Members.
Fortuitously for us, we were hit with extreme winter conditions just
when the plan went in place. Demand soared and the planned capacity we
had provided was needed. A neighboring entity was hit with the same
conditions. Like us they had significant growth in heat pumps – but they
had not forecasted their extreme weather peak to climb as we had. They
had to go to the overburdened markets to find energy and make some
curtailments. The cost of replacement power turned out to be
significantly greater proportionately than we incurred by planning for
the high demand. They suffered real consequences due to the shortcomings
of their planning efforts.
However, if extreme winter had not occurred, our neighbor’s costs
would have been lower than ours that year and that may have continued
many years into the future as long as we didn’t see extreme winter
conditions. Instead of the praise we eventually received, there would
have at least been some annoyance directed at my groups for contributing
to “un-needed expenditures”. That’s the way of the world. You can often
do things a little cheaper, save some money and most of the time you
can get away with it. But sometimes/eventually you cut it too close and
the consequences can be extreme.
The Approach in Texas
Who is responsible for providing adequate capacity in Texas during
extreme conditions? The short answer is no one. The Electric Reliability
Council of Texas (ERCOT) looks at potential forecasted peak conditions
and expected available generation and if there is sufficient margin they
assume everything will be all right. But unlike utilities under
traditional models, they don’t ensure that the resources can deliver
power under adverse conditions, they don’t require that generators have
secured firm fuel supplies, and they don’t make sure the resources will
be ready and available to operate. They count on enough resources being
there because they assume that is in their owner’s best interests.
Unlike all other US energy markets, Texas does not even have a capacity market.
By design they rely solely upon the energy market. This means that
entities profit only from the actual energy they sell into the system.
They do not see any profit from having stand by capacity ready to help
out in emergencies. The energy only market works well under normal
conditions to keep prices down. While generally markets are often great
things, providing needed energy during extreme conditions evidently is
not their forte. Unlike the traditional approach where specific entities
have responsibilities to meet peak levels, in Texas the responsibility
is diffuse and unassigned. There is no significant long term motivation
for entities to ensure extra capacity just in case it may be needed
during extreme conditions. Entities that might make that gamble
theoretically can profit when markets skyrocket, but such approaches
require tremendous patience and the ability to weather many years of
potential negative returns.
This article
from GreenTech media praises energy only markets as do many green
interests. Capacity markets are characterized as wasteful. Andrew
Barlow, Head of the PUC in Texas is quoted as follows, “Legislators have
shown strong support for the energy-only market that has fueled the
diversification of the state’s electricity generation fleet and yielded
significant benefits for customers while making Texas the national
leader in installed wind generation. ”
Why has Capacity been devalued?
Traditional fossil fuel generation has (as does most hydro and
nuclear) inherent capacity value. That means such resources generally
can be operated with a high degree of reliability and dependability.
With incentives they can be operated so that they will likely be there
when needed. Wind and solar are intermittent resources, working only
under good conditions for wind and sun, and as such do not have capacity
value unless they are paired with costly battery systems.
If you want to achieve a higher level of penetration from renewables,
dollars will have to be funneled away from traditional resources
towards renewables. For high levels of renewable penetration, you need a
system where the consumers’ dollars applied to renewable generators are
maximized. Rewarding resources for offering capacity advantages
effectively penalizes renewables. As noted by the head of the PUC in
Texas, an energy only market can fuel diversification towards
intermittent resources. It does this because it rewards only energy that
is fed into the grid, not backup power. (Side note-it’s typical to
provide “renewable” resources preference for feeding into the grid as
well. Sometimes wind is compensated for feeding into the grid even
during periods of excess generation when fossil fuel resources are
penalized. But that’s another article. )
Traditional planning studies might recognize that wind needs to be
backed up by fossil fuel (more so under extreme conditions) such that if
you have these backup generators its much cheaper to use and fuel them,
than to add wind farms with the accompanying significant investment for
concrete, rare earth metals, vast swaths of land …. . Traditional
planning approaches often have to go to get around this “bias” of
favoring capacity providing resources over intermittent resources.
When capacity value is rewarded, this makes the economics of
renewables much less competitive. Texas has stacked the deck to make
wind and solar more competitive than they could be in a system that
better recognizes the value of dependable resources which can supply
capacity benefits. An energy only market helps accomplish the goal of
making wind and solar more competitive. Except capacity value is a real
value. Ignoring that, as Texas did, comes with real perils.
In Texas now we are seeing the extreme shortages and market price
spikes that can result from devaluing capacity. The impacts are
increased by both having more intermittent resources which do not
provide capacity and also because owners and potential owners of
resources which could provide capacity are not incentivized to have
those units ready for backup with firm energy supplies.
Personal Observations
Wind and solar have value and can be added to power systems
effectively in many instances. But seeking to attain excessive levels of
wind and solar quickly becomes counterproductive. It is difficult to
impossible to justify the significant amounts of wind and solar
penetration desired by many policy makers today using principals of good
cost allocation. Various rate schemes and market proposals have been
developed to help wind and solar become more competitive. But they come
with costs, often hidden. As I’ve written before, it may be because
transmission providers have to assume the costs and build a more
expensive system to accommodate them. It may be that rates and markets
unfairly punish other alternatives to give wind and solar an advantage.
It may be that they expose the system to greater risks than before. It
may be that they eat away at established reliability levels and weaken
system performance during adverse conditions. In a fair system with good
price signals today’s wind and solar cannot achieve high penetration
levels in a fair competition.
Having a strong technical knowledge of the power system along with
some expertise in finance, rates and costs can help one see the folly of
a variety of policies adopted to support many of today’s wind and solar
projects. Very few policy makers possess anything close to the skill
sets needed for such an evaluation. Furthermore, while policy makers
could listen to experts, their voices are drowned out by those with
vested interests in wind and solar technology who garner considerable
support from those ideologically inclined to support renewables
regardless of impacts.
A simpler approach to understanding the ineffectiveness of unbridled
advocacy for wind and solar is to look at those areas which have heavily
invested in these intermittent resources and achieved higher
penetration levels of such resources. Typically electric users see
significant overall increases in the cost of energy delivered to
consumers. Emissions of CO2 do not uniformly decrease along
with employment of renewables, but may instead increase due to how back
up resources are operated. Additionally reliability problems tend to
emerge in these systems. Texas, a leader in wind, once again is added to
the experience gained in California, Germany and the UK showing that
reliability concerns and outages increase along with greater employment
of intermittent resources.
Anyone can look at Texas and observe that fossil fuel resources could
have performed better in the cold. If those who owned the plants had
secured guaranteed fuel, Texas would have been better off. More
emergency peaking units would be a great thing to have on hand. Why
would generators be inclined to do such a thing? Consider, what would be
happening if the owners of gas generation had built sufficient
generation to get through this emergency with some excess power? Instead
of collecting $9,000 per MWH from existing functioning units, they
would be receiving less than $100 per MWH for the output of those plants
and their new plants. Why would anyone make tremendous infrastructure
that would sit idle in normal years and serve to slash your revenue by
orders of magnitudes in extreme conditions?
The incentive for gas generation to do the right thing was taken away
by Texas’s deliberate energy only market strategy. The purpose of which
was to aid the profitability of intermittent wind and solar resources
and increase their penetration levels. I don’t believe anyone has ever
advanced the notion that fossil fuel plants might operate based on
altruism. Incentives and responsibility need to be paired. Doing a
post-mortem on the Texas situation ignoring incentives and
responsibility is inappropriate and incomplete."