5 ms·

Summary: Texas's energy market does not incentivise capacity planning as common in other utility markets instead pricing only energy delivered. When demand inc

Summary: Texas's energy market does not incentivise capacity planning as common in other utility markets instead pricing only energy delivered. When demand increased and capacity dropped the grid failed. The post claims this market structure is designed to make renewable a more attractive investiment which partly dropped capacity due to lack of wind velocity but then sides steps the question of winterization of the non wind generation sources as the primary cause of the drop in capacity. In short, Texas cheaped out on long term grid protection to make short term gains in energy delivery prices. The bet pays off most of the time, but when it doesn't the failures are catastrophic.

throwawayboise 6y ago
When I have read about this Texas situation I found that I did not really understand what a "capacity market" for energy was. I assumed it was some sort of futures market, and it sort of is. This maybe clarifies how an energy capacity market works. https://energynews.us/2013/06/17/midwest/explainer-how-capacity-markets-work/ https://energynews.us/2013/06/17/midwest/explainer-how-capac...
bryanlarsen 6y ago
To a large degree, simple price signals can incentivize capacity. A plant doesn't have to operate many hours in the year to be profitable at $9000/MWhr.
- asmithmd1 6y ago
  Sure, sure, $9,000/MWhr is a sweet reward that was being offered way back on Wednesday. Do you know what the clearing price is right now? -$31.65 Yes, they are CHARGING power plant operators who rushed to bring capacity online: http://www.ercot.com/content/cdr/html/20210220_real_time_spp http://www.ercot.com/content/cdr/html/20210220_real_time_spp Maybe markets are not the best solution for every situation.
  - throwawayboise 6y ago
    Those are both snapshots. Over the years/decades that energy generation infrastructure operates, there's an average.
    - snovv_crash 6y ago
      The problem is that it isn't good enough if the grid only works "on average". It needs higher uptime than pure market incentives would give.
  - autoditype 6y ago
    > Yes, they are CHARGING power plant operators who rushed to bring capacity online. A negative cost incentivizes the operators to turn it off, no? I imagine those power plant operators can easily turn it off in an hour? 9000/31=290.3, so there is plenty of margin to break even.
  - powerbroker 6y ago
    I'm a Texas residential customer. I've tried Griddy, the only service that exposes the customer directly to the wholesale electricity rates. Over two days, my electric bill mounted to somewhere around $1600. I'm not complaining, because in ~18 months prior to that, those low (and sometimes negative) $/kWh actually saved me around $2,000. Not for everyone. But one effect of these real-time communicated rates, is my house skipped running equipment that would have consumed 50kWh+ during those $9.00/kWh periods. Accordingly, by adjusting my demand, in response to limited supplies, I made it possible for other Texans to not get crushed by a rolling blackout. In addition, if thousands of people adjust their demand in this manner -- it can make it possible to reduce the CO2 emissions associated with the mere construction of a peaker plant, that, itself, might get used only 10-15% of the time.
  - rudolph9 6y ago
    Markets are great when the rules they are bound to are well defined and protect consumers. None of this would have been a problem if they required producers to winterize their equipment. The markets in Texas generally work pretty well except for where they don’t. It doesn’t take a rocket scientist to see that basic regulations that power generation needs be winterized (among others thing) may cost slightly more on a day to day basis but costs consumers far less in the long run. Everything in life is a trade off and unfortunately the voters of Texas have prioritized centralizing regulatory authority (a little counterintuitive but ERCOT runs basically everything and local municipalities are not allowed to much wiggle room), blind faith private entities that are accountable to no one and loose very little when something like this happens (the generation companies aren’t paying for everyone’s burst pipes, the property owners who’s insurance premiums are going through the rough do and the American people in general through Federal aid).
- amluto 6y ago
  True, but it also seems like a dubious business proposition to build a power plant in the hope that energy prices will spike that high in a timely manner.

throwawayboise 6y ago

When I have read about this Texas situation I found that I did not really understand what a "capacity market" for energy was. I assumed it was some sort of futures market, and it sort of is. This maybe clarifies how an energy capacity market works. https://energynews.us/2013/06/17/midwest/explainer-how-capacity-markets-work/ https://energynews.us/2013/06/17/midwest/explainer-how-capac...

bryanlarsen 6y ago

To a large degree, simple price signals can incentivize capacity. A plant doesn't have to operate many hours in the year to be profitable at $9000/MWhr.

asmithmd1 6y ago
Sure, sure, $9,000/MWhr is a sweet reward that was being offered way back on Wednesday. Do you know what the clearing price is right now? -$31.65 Yes, they are CHARGING power plant operators who rushed to bring capacity online: http://www.ercot.com/content/cdr/html/20210220_real_time_spp http://www.ercot.com/content/cdr/html/20210220_real_time_spp Maybe markets are not the best solution for every situation.
- throwawayboise 6y ago
  Those are both snapshots. Over the years/decades that energy generation infrastructure operates, there's an average.
  - snovv_crash 6y ago
    The problem is that it isn't good enough if the grid only works "on average". It needs higher uptime than pure market incentives would give.
- autoditype 6y ago
  > Yes, they are CHARGING power plant operators who rushed to bring capacity online. A negative cost incentivizes the operators to turn it off, no? I imagine those power plant operators can easily turn it off in an hour? 9000/31=290.3, so there is plenty of margin to break even.
- powerbroker 6y ago
  I'm a Texas residential customer. I've tried Griddy, the only service that exposes the customer directly to the wholesale electricity rates. Over two days, my electric bill mounted to somewhere around $1600. I'm not complaining, because in ~18 months prior to that, those low (and sometimes negative) $/kWh actually saved me around $2,000. Not for everyone. But one effect of these real-time communicated rates, is my house skipped running equipment that would have consumed 50kWh+ during those $9.00/kWh periods. Accordingly, by adjusting my demand, in response to limited supplies, I made it possible for other Texans to not get crushed by a rolling blackout. In addition, if thousands of people adjust their demand in this manner -- it can make it possible to reduce the CO2 emissions associated with the mere construction of a peaker plant, that, itself, might get used only 10-15% of the time.
- rudolph9 6y ago
  Markets are great when the rules they are bound to are well defined and protect consumers. None of this would have been a problem if they required producers to winterize their equipment. The markets in Texas generally work pretty well except for where they don’t. It doesn’t take a rocket scientist to see that basic regulations that power generation needs be winterized (among others thing) may cost slightly more on a day to day basis but costs consumers far less in the long run. Everything in life is a trade off and unfortunately the voters of Texas have prioritized centralizing regulatory authority (a little counterintuitive but ERCOT runs basically everything and local municipalities are not allowed to much wiggle room), blind faith private entities that are accountable to no one and loose very little when something like this happens (the generation companies aren’t paying for everyone’s burst pipes, the property owners who’s insurance premiums are going through the rough do and the American people in general through Federal aid).
amluto 6y ago
True, but it also seems like a dubious business proposition to build a power plant in the hope that energy prices will spike that high in a timely manner.