Texas proposed energy market overhaul misses the mark
A $460 million solution that won't fix the problem of grid instability in rare winter events like Uri
The Texas Public Utility Commission approved a proposal that would transfer an estimated $460 million from ratepayers to generators based on their availability during periods of high stress on the grid. It’s the biggest change Texas has proposed in response to the 2021 Winter Storm Uri that left 69 percent of Texans without power. But the proposals misunderstands the cause of the Uri grid instability — poor weatherization and gas plants that were unexpectedly offline — instead trying to incentivize more gas power plants with hundreds of millions from consumers.
Let’s look at the big picture. Texas generates and consumes a lot of power. While power consumption went up steadily from 2015-2021, 2022 set records. The records aren’t just at peak consumption in 2022 (though it did set those) but across every hour of the day. Here’s how to read this chart: in the top 1% of hours in the year — the highest load 87 hours of the year — the maximum load on the grid during those hours was 80 GW in 2022. In the hours that represent 50% of the year, max load was 47 GW, up 10% from 2021. Every hour of the day had load greater than 33 GW which was up 8% from 2021.
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Now let’s look back to what happened during Uri. The Texas grid generally sees its peak load about 6pm local time. That was no different on the 14th of February, 2021, though there did appear to be some load shedding or demand response through the peak demand hours. However, things came crashing down after 2am on the 15th of February.
At the time of the meltdown there was 63.9 GW of load on the grid. That’s a lot, especially for 2am, but isn’t an unprecedented load. In fact, load had been 69.7 GW just six hours before at 8pm which would have also been after dark in February. For context, there were 3,312 hours between 2015 and 2022 that had higher load than what brought down the grid during Uri.
As Doug Lewin has shown, the same thing happened again during Winter Storm Elliot right before Christmas 2022. He reports that more than 40% of coal plants were offline at some point during the storm, coal capacity hit a low of 57%, they asked for an emergency declaration from the Department of Energy, and numerous gas plants were offline. History repeated itself.
Getting back to the Texas proposal, the so-called Performance Credit Mechanism would award a subset of dispatchable generators (which would likely be dominated by gas) credits (money) based on their “availability across a set of high reliability risk hours” according to Utility Dive. According to the Chair of the PUCT, the goal is to “guarantee a pot of revenue for reliable resources to go compete for”. The proposed solution to unreliable generation is to give money to the reliable generation. But the problem doesn’t end there.
How Texas defined the “high reliability risk hours” makes a big difference. Let’s assume a high reliability risk hour is anything in the top 10% of 2022 load-hours. That means we’d consider anything above 66.6 GW is a threat to the grid. Using that metric, there have been 1,943 hours above that load since 2015. Not surprisingly, the vast majority of those high load hours are in the summer.
(The original study that proposed the PCM has a more complex high reliability risk definition: the ~30 hours per year with the “lowest additional operating reserves”. And the credit or penalty that would be assessed to generators would be based on generators’ availability to put power into the market during those high risk hours as compared to their accredited capacity. Though the study’s illustration (below) doesn’t have dates, it appears to represent months and support the assessment that these high stress hours would be during the summer.)
Without an even more complicated seasonality component, the PCM would be rewarding the dispatchable generation that was online during the hottest parts of the summer, not the load that stayed online through rare winter weather events.
As the PUC study plainly projects, this market design change would incentivize new gas power plants to come into the market. In that sense, it will likely add overall capacity, albeit dirty and expensive capacity. What it wouldn’t do it is target money for weatherization to protect against grid failure in rare winter events.
If the PUC and Texas legislators want to protect the grid in the face of rare events and surging overall demand, here’s a plan: (1) identify the cause of generators being offline when needed and get that fixed. Then (2), stay ahead of surging demand with incentives for short and long-duration storage, transmission, local generation, and demand response.