Home » Blog » 4 Questions Answered About Texas’ Grid Crisis
Energy News Texas United States

4 Questions Answered About Texas’ Grid Crisis

Faced with an ever-tightening electric grid, Texas is trying to bring new fossil fuel plants online — as well as some old ones.

Ahead of the coming winter, the state’s main grid operator is calling for electricity providers to revive recently retired power plants in the event of a winter storm like the one that crippled the state in 2021.

The Electric Reliability Council of Texas (ERCOT) says it wants 3,000 megawatts for the winter, enough to power 600,000 homes during peak times. The request is also pending as Texans get ready to vote next week on a constitutional amendment that would see the state fund low-interest loans for companies to build natural gas-fired power plants used in times of emergency.

Both developments will be watched closely by grid experts concerned about the vulnerabilities of the U.S. power system to climate change and a rapidly changing fuel mix. They also stand in contrast to efforts in some blue states, where politicians and regulators have worked to boost reliability without adding fossil fuel emissions, although strong demand has forced companies to maintain some existing gas and nuclear plants.

Texas’ moves reflect a grid design that ERCOT CEO Pablo Vegas said is not keeping up with a growing economy and the stress of extreme weather. Speaking to the grid operator’s board in October, Vegas said the “underlying market design hasn’t recently been incentivizing a balanced mix of additional resources onto the grid,” with prices favoring wind and solar rather than gas plants that can start up on demand and run for days or weeks on end without interruption.

“That has led to a grid that has evolved to be more volatile and have more operational risk because the type of resources that are being incentivized are intermittent resources and those with shorter durations,” Vegas said.

ERCOT officials say the need for more power is urgent. The grid — which handles about 90 percent of Texas’ power demand — set 10 all-time peak demand records this summer and came just shy of instituting rolling blackouts during a grid emergency one evening. ERCOT’s record for peak demand has skyrocketed from 74,820 MW in 2019 to 85,464 MW this year, with no sign of slowing down.

And while demand is typically lower in the winter, so is the margin for error. Winter Storm Uri in February 2021 saw several large gas and coal plants buckle under freezing conditions. Those failures, along with problems at renewable and nuclear facilities, caused widespread blackouts as demand boomed.

According to ERCOT projections released in October, 15 generation units are expected to be out of service this winter, creating a 20 percent chance of a grid emergency in the event of a severe cold snap. Adding 3,000 MW of generation, the operator found, would lower that risk to less than 10 percent.

But the push for more generation has raised concerns about environmental impacts, cost and whether operators are ignoring other solutions.

Here are four questions about Texas’ new grid push.

How much can Texas bring online for the winter?

A weather forecast released by ERCOT shows the grid operator expects “normal to below normal temperatures and normal to below normal precipitation,” but leaves open the possibility for an extended cold snap along the lines of one that threatened the grid last December.

Doug Lewin, the president of Stoic Energy Consulting who supports the use of renewables and energy efficiency efforts, said ERCOT was essentially trying to revive “zombie power plants” to prepare for the winter. And there’s no guarantee that ERCOT can even get enough power out of them to meet its needs.

An initial list of potentially eligible generators released by ERCOT identified a total of just 2,090 MW. For example, ERCOT said it could get 840 MW from the coal-fired J.T. Deely plant, which retired in 2018. But in a statement, CPS Energy, the San Antonio-owned utility that controlled the plant, said it was not considering restarting it, citing a “commitment to our community that [it] would be retired.”

Likewise, ERCOT said a retired unit of the gas-powered Decker Creek station, which ended operations in 2022, could provide 428 MW. A spokesperson for Austin Energy, the co-owner, said the turbines on the unit had “reached the end of their functional life” and could not be restarted even if the company wanted to.

In an email statement, ERCOT said it does not comment on “specific power providers’ operations” and added that it did not project emergency conditions this winter. In a previous statement, Vegas said “we want to be prepared and ensure all available tools are readily available if needed.”

Lewin said the focus on bringing back power plants came at the expense of incentives for improving home heating or increasing energy efficiency, steps that could dramatically decrease demand even during a cold snap.

“There’s the saying that the best time to plant a tree was 10 years ago and the next best time is now,” Lewin said. “That’s what I’ve been saying about efficiency. They should get started on this now.”

ERCOT has identified demand response as an option for power companies to be compensated for helping the grid, but it comes with narrow restrictions. According to ERCOT materials, either users with large loads or aggregations of customers can be eligible for compensation for agreeing to limit demand during certain periods of the winter. Battery storage resources will also be available to participate, including those that have been proposed to connect to the grid and could be accelerated.

ERCOT says it wants proposals to participate by Nov. 6 and that it will notify recipients by Nov. 23, with a target service start date of Dec. 1. That leaves little time — and plenty of confusion for the market. Indeed, a memo released this week from state Public Utility Commission member Will McAdams cautioned that the plan could set a precedent that would undermine confidence in the grid — including efforts to add more electricity or trim power demand.

“If not restrained, the policy could be used to procure unlimited amounts of energy or demand response at whatever costs the staff of ERCOT deem ‘reasonable’ without a system of due process we, as their regulator, are bound by duty and statute to provide,” McAdams wrote.

At a commission meeting Thursday, McAdams helped push the successful approval of a policy that counts spending on the winter additions against a $1 billion statutory cap on ERCOT spending.

What’s on the ballot?

Texas voters will get a chance Tuesday to approve Proposition 7, of the state Legislature’s top grid proposals.

In May, lawmakers passed a sweeping package of grid changes designed to bring more generation online, including funding for what lawmakers dubbed the Texas Energy Fund. If passed, the state would support up to $10 billion in loans with just 3 percent interest for power projects to be available during grid emergencies. Most of that money — $7.2 billion — is for dispatchable power plants likely powered by natural gas.

There is no timeline for plants to come online, but those that connect before June 1, 2029, would get a bonus.

poll released last week by the University of Houston and Texas Southern University found that 68 percent of voters favored the proposition, while 15 percent were opposed and 17 percent were unsure.

The Texas Association of Manufacturers, which represents large businesses and industrial users, has said the Texas Energy Fund would help expand energy infrastructure, make the generation sector more resilient and increase electricity supply.

“In addition to bolstering reliability, increasing the supply of generation will help keep prices in check for all consumers by reducing the frequency of expensive power shortage events,” said Tony Bennett, the group’s president, in a statement to E&E News. “Texas is in a position to fund these critical infrastructure investments because our economy is robust, and voter approval of Prop 7 will pave the way toward continued economic growth and global leadership for our state.”

But not everyone is sure that the loans will lead to more power flowing on the grid.

“Even being able to draw on loans at a 3 percent interest rate, there are huge risks involved in building a natural gas power plant these days,” said Daniel Cohan, an associate professor of civil and environmental engineering at Rice University. He said the boom in solar and wind power means that gas plants will not be cost-competitive and there is a risk that such plants “might only be needed a small fraction of the time.”

“No matter how cheap your cost of capital is, if you’re not selling enough electricity and bringing in enough revenue, it’s not going to be a good investment,” Cohan said.

Those concerns were also echoed by some large power providers when the Legislature was debating the bill creating the loan program. The program has also been beset by questions about whether the state is tipping the scales in favor of natural gas power at a time when wind and solar — which can be paired with battery storage to be available even when they are not generating — are dropping in cost.

Although the language of the proposition does not mention natural gas, it is the source that is most likely to be eligible. Battery storage projects would not be able to participate.

The Sierra Club’s Lone Star Chapter has advocated against Proposition 7, saying it “would create a taxpayer-backed subsidy for one set of players and likely one major technology — fracked gas.”

“Texans should reject Prop 7 because we don’t need to spend taxpayer dollars to subsidize wealthy companies building polluting gas plants that will only create greater problems in the future,” the group wrote.

How much will everything cost?

ERCOT has not said how much it could spend on the winter procurement, but the operator’s prices during periods of grid stress are increasingly in the spotlight.

An analysis released in September by the state’s independent market monitor found that a tweak in the market designed to boost reliability had spiked prices by $8 billion over three months. Through its new emergency reserve program, ERCOT was paying power providers to essentially keep some generation on standby in case of emergency, which led to what Carrie Bivens, the director of the monitor’s office, called “artificial shortage pricing.”

Speaking to the ERCOT board in October, Vegas disputed the notion that customers were footing an additional $8 billion bill this summer. That number, he said, reflected wholesale prices on the market, not the day-ahead prices that most consumers pay on the retail market.

The high real-time prices, he added, led to large load users reducing demand when the grid was at its most stressed and reflected the market “responding to the operational conditions as it is designed to do when there is scarcity.”

“As we experienced this summer, due to extreme weather and due to economic load growth, we’re going to see higher prices in an energy-only market, which is designed to incentivize the development of new resources in order to meet those demands,” Vegas said.

On Thursday, the PUC also approved an increase in ERCOT fees, which are not charged to customers directly but are passed on through electricity rates.

Are there other options?

ERCOT has long framed the build-out of wind and solar generation as a reliability problem, since they are weather-dependent. But a recent analysis from a federal energy agency found that the state could be taking more advantage of those resources with a bigger investment in transmission and storage.

The U.S. Energy Information Administration said Texas had to curtail 5 percent of its wind power and 9 percent of its solar power in 2022 because there was not enough transmission to take it to the urban load centers. Those numbers could rise to 13 percent of wind and 19 percent of solar by 2035 without any grid upgrades.

Rice’s Cohan said wind and solar are complementary in Texas because the wind generally picks up in the late afternoon as the sun is setting. That can be leveraged along with better transmission, battery storage and emergency reserves for a stronger grid, he said.

“The best way to ease the burdens on the grid is to continue building more wind and solar farms, but being sure we also have the resources to accompany them,” he said. “The idea that it’s an either-or situation and that we should slow down on wind and solar to build more coal and gas is not wise.”

Notably, the Texas Energy Fund would lay the groundwork for parts of the state to go off the grid. If approved, the plan would also allow the state to spend up to $1.8 billion in grants or loans for microgrid projects, a collection of loads and distributed resources like solar and batteries that could operate off the grid as multiday backup power.

But Lewin said the state can also do more to look at reducing demand, especially in the risky winter months. A common heating system in the state is an electric resistance furnace that runs on grid power, according to a 2021 report from the American Council for an Energy-Efficient Economy. While those units do not run on gas, they are less efficient than newer heat pumps and tend to dramatically raise demand during a deep freeze.

That report found that replacing less efficient heaters and implementing a suite of other residential retrofits — like attic insulation, smart thermostats, installing efficient heat pump water heaters and managing electric vehicle charging — could cut some 11,400 MW from winter peak load in Texas.

That, Lewin said, would also help lower costs for consumers while also getting ERCOT away from a trend of constantly adding new power plants.

“We’ve seen peak demand hit 80,000 MW in 2022 and 85,000 MW this summer. Who’s to say we don’t hit 90,000 next summer?” Lewin said. “If we add 5,000 MW, does that solve the problem? You can’t possibly build supply fast enough if you’re not also addressing demand.”

Source : E&NEWS