What happened in Texas last night?
A close call that shows the promise of new and old players in electricity
Last night, there was a close call for keeping the lights on in Texas. Hot weather pushed electricity demands up as people fought unseasonable +100-degree weather. The Dallas/Fort Worth area tied a record from 1933–hitting 95 degrees before summer begins.
Ultimately, this meant that Texas had less of a buffer on its electricity system than it normally does.
Why the close call? My relative ordering would be something like this:
Plant outages amounted to slightly less than twice what ERCOT originally planned. Much of this was due to thermal providers being out for maintenance.
Solar’s contribution drops as the day turns into night, but electricity demand ramps up.
Wind generation tends to kick in during the evening. Although it does relieve some of the pressure, it can also kick in after the demand for electricity falls.
Of special note, Texas’s unique regulations around electricity don’t fit on the list of reasons there was a close call. To the extent that they do, they belong on the list of solutions to the problem. Innovations, like David Energy’s virtual power plant, are possible in part because of the rules in Texas. Battery discharge orchestrated by VPPs coordinating home storage set a record in ERCOT that night. Energy-only markets, like Texas, maintain a technology-neutral stance by virtue of their singlemindedness. There will be fewer close calls in the future if Texas doubles down on what makes its system work.
Storage had a big day; gas continued to excel
The energy-only market is part of how storage has thrived in Texas. The close call depicts storage’s potential at its best. Rather than move electricity through physical space with transmission lines, batteries move electricity through time. They’ve moved electricity from then it was cheap to then it was most expensive. Battery owners celebrated as they made +400¢/kWh–Texas’s average electricity price per kWh is usually around 15¢.
Given the value of smoothing out these prices, a lot of innovation is happening in this space. Base Power, a new company challenging Tesla’s powerwalls, launched the day before this close call. Part of its innovation is oversizing the battery to streamline its addition to the home and to be able to sell when prices rise to these heights. Other companies are making new ways to store power that we should all be excited to see try their luck.
As impressive as this is, crediting batteries is just one part of the story. Natural gas generation ramped up from about 20GW across ERCOT to a peak about twice as high before dropping back down. To clarify the relative contributions of gas and batteries, gas generators provided more than ten times as much electricity to the grid as batteries. This doesn’t make batteries unimportant so much as designate natural gas as the unappreciated middle child of the energy transition.
It’s also worth grappling with the outages. Texans should ask why ERCOT planned for 14.7GW of outages and ended up with 24.7GW. That’s a wide margin to miss–a mistake with expensive repercussions. Doug Lewin noted that if more power had been available, then “prices would be low.” That’s the simple economics of electricity generation. Having more generators available means lower costs for customers–so should Texas pay people to be at the ready?
Texas doesn’t need a capacity market
In a capacity market, the grid operators provide funds for companies to be ready and available in case of a need for additional capacity. Despite being called for after every problem in Texas, whether the issue is a mountain or a molehill, capacity markets face their own challenges. Creating a Texas capacity market would be a bad fit for the actual challenges facing ERCOT.
The hypothetical worry behind capacity markets is that dispatchable generators will not make enough money to stay online and available for times when supply is short. So, the capacity market seeks to supplement the earnings of dispatchable sources to keep them in reserve for cases when they are needed.
There are serious arguments that capacity markets fail at their primary intention. In Texas, they’re unnecessary. As Todd Aagaard and Andrew Kleit conclude their book on capacity markets, the “Operating Reserve Demand Curve accomplishes the objectives of a capacity market but is based directly on economic theory, rather than a set of ad hoc assumptions. Thus, current and potential future developments call into question proffered justifications for capacity markets.”
Those future developments that Aagaard and Kleit reference are already a reality in Texas. They are grid-enhancing technologies, batteries, virtual power plants, and the simple actions of encouraging better insulation. Even the entrance of Bitcoin miners into the ancillary services market represents the kinds of market-driven actions that a capacity market would undermine.
Borrowing from Kleit and Aagaard again, Texas could be better off raising the price cap from $5,000 to reflect the true value of the lost load from blackouts. Moving the cap down, as ERCOT did after Winter Storm Uri, was likely a mistake. A more productive debate would be on the level to set the value of lost load at within ERCOT. Raising it would mean more support for the backup generators via the ORDC. A good question for those asking ERCOT to create a capacity market is how they want it to differ from how the ORDC already operates and why.
Fundamentally, most of the problems that ERCOT experiences that people think a capacity market will prevent are weather-related. That means a program that deals with weather risks will do well at keeping electricity flowing. In this light, capacity market proposals are particularly ill-equipped to help ERCOT. Instead, insulation for the winter, pre-cooling homes when energy is plentiful, creating demand response programs that reflect real-time prices, and other weather responses seem more likely to strike at the root of the problem.
Old and new work together for resiliency
Just as no single factor is at fault for last night's close call, there’s also no single solution going forward. People will look at charts of what was powering ERCOT and blame solar for falling off or wind for not being under ERCOT’s control. It’s true that the advance of energy technologies that can’t be ramped up or down will require changes. Those changes are needed in both policy reform and energy technologies. That’s why we should celebrate a system like ERCOT’s for its focus on innovation in serving customers. It will generate several safety nets from multiple technologies.
The close call last night was a reminder of the evolving dynamics shaping Texas's electricity market. The interplay between surging temperatures, unexpected plant outages, and the changing supply of renewable energy demonstrates the impressive potential of innovative solutions like virtual power plants and battery storage paired with old and underappreciated workhorses like natural gas. Texas should recognize generators, VPPs, and storage, all as friendly competitors for keeping homes cool and bright.
By doubling down on its market-based policies, Texas can address its growing energy needs while ensuring that the lights stay on for all its residents.