Commentary: Proposed fixes to Texas grid just might break it
By Josiah Neely | April 12th, 2023
Two years after Winter Storm Uri, many Texans remain worried they will again be left without power at a critical moment. This worry has spurred needed grid reforms, such as the weatherization of power plants. But it has also left policymakers with a continual sense that they must do something to “fix the grid,” even when doing so would cost consumers money while delivering little to no, or even negative, reliability benefit.
At the root of the problem is a misunderstanding of the 2021 blackout causes. A common view within and outside the statehouse is that blackouts show Texas does not have enough power plants to meet demand. In particular, it is claimed, Texas does not have enough “dispatchable generation,” a somewhat vague term that often means “everything other than renewables.”
The reality is somewhat different. Texas’ electric generators boast over 142 gigawatts, or GW, in installed generation capacity, of which 88 GW is thermal generation (coal, gas and nuclear plants).
In the years since the Texas electric market was restructured to allow for competition, more than 39,000 megawatts, or MW, of new gas generation has come online. The problem in 2021 was not that we didn’t have enough power plants; it was that the ones we had could not operate in the cold weather. During the February 2021 blackouts, the Electric Reliability Council of Texas, or ERCOT, was only able to call upon around 50 GW of power due to outages. Contrary to attempts to place the blame on renewable energy sources, these weather-related outages occurred among thermal generators as much as they did among renewables.
Nevertheless, the fear that the Texas market is not producing enough dispatchable generation is leading to government interventions that could prove costly to consumers. Recently, the state’s Public Utility Commission, or PUC, voted in favor of creating a performance credit mechanism that would reward dispatchable generators that provide power during the highest hours of demand. While many details still need to be worked out, the PUC’s analysis suggests that it would cost $37,000 for every MW hour of avoided outage. While this may be within the range estimated for the value of lost load, it is far higher than the maximum wholesale electric price allowed in the ERCOT market. Officials have also suggested that the PCM would discriminate against renewable generators, which would not receive the credit even if they provide power when most needed.
The plan has received a fair amount of criticism from members of the Legislature. Unfortunately, the alternatives offered could be much worse. Several lawmakers have broached the idea of simply having the state build new gas plants. This would mean abandoning the Texas model for an approach recently adopted in California. A version of this proposal pitched last session came with an $8 billion price tag. More worrisome are the plan’s long-term effects on market investment.
State-run power plants would undercut competitive generators, reducing profitability and making it less likely that businesses will want to invest in building new plants, causing capacity shortage.
Texas’ competitive electric market has delivered massive cost savings over the last 25 years. It would be unfortunate if policymakers conclude now that they have to destroy the market in order to save it. Texas policymakers need to stop trying to pit different energy types against each other and recognize that a diverse fuel mix can make the grid more resilient. Instead of costly programs that pick winners and losers in the market, Texas should ensure generators can handle whatever the weather throws at them.
Josiah Neeley is Texas director of the R Street Institute, a nonprofit think tank focused on free markets and limited government.