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They may have delivered low prices, but it was at the cost of ignoring handling “black swan” events. As the ERCOT CEO said, If they had not blacked out millions

They may have delivered low prices, but it was at the cost of ignoring handling “black swan” events. As the ERCOT CEO said, If they had not blacked out millions of customers, grid and consumer equipment would have been destroyed - wiping out all the accumulated cost savings. ERCOT does not pay producers for standby capacity. Just this week the New England grid completed its annual auction for capacity to be available 3 years from now. The prices they will pay are between $3-$5/MWhr. Maybe a little more than electricity in TX in 2024 (but who knows). No power plant operator is going to hit the $9,000/hr “gusher”, but it will be available and they will get paid.

mrDmrTmrJ 6y ago
Respectfully, I don't see the issue as one of choosing to have a capacity market. There was ample excess capacity (at least 26GWs!), just no natural gas to run it as the natural gas infrastructure was frozen. So what was the nature of the failure? Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. Because this infrastructure froze, the state ran out of methane ('natural gas') to run it's massive excess capacity. Now this isn't hard to do, Siberia, New England, and Scandinavia all have massive natural gas infrastructure that's fully winterized. But Texas never required that winterization, so they ran out of actual methane when they needed it most and then the turbines could not turn. Said differently, the underlying issue is regulatory and 'energy system' one - having a capacity market (like PJM or New England ISO) would in no way have changed the outcome because the state would still have run out of methane. Do you see it differently?
- WalterBright 6y ago
  > Do you see it differently? Yes. If minute-by-minute retail electricity pricing was there, then there'd be a large incentive to winterize the fuel supply, because the ones who didn't would lose out on the profits from higher electric rates from the ones who did.
  - kristjansson 6y ago
    Aren’t the generators already selling into a spot market that saw a multi thousand percent price increase in this demand peak, and are thus so incentivized? Providers AIUI are not responsible for any physical infrastructure, they’re selling volatility reduction by buying power from generators at spot and and sending it down publicly managed lines to customers for fixed rates. I buy your point up thread that more responsive retail pricing would’ve reduce demand faster[1], but I think generators just failed to foresee the failure points of their systems and the potential severity of winter events despite significant incentives to do so. Since the spot price hit its statutory cap, you might argue that the limit on potential windfall profits rendered winterization ROÍ negative - which might be true but if the only way to keep the lights on is to let the generators plan on pillaging a state in crisis, the state might want to step in to provide support beforehand. [1] leaving aside the point the ‘reducing demand’, in this instance, means poor people are cold or worse.
- raisedbyninjas 6y ago
  Is 26GW the actual surplus capacity? My understanding is the number of homes without power that were not part of intentional blackouts would have surpassed grid capacity. This aligns with heating taking more power than summer cooling. It's normal for Texas to have a few blackouts per summer season due to demand.
  - mrDmrTmrJ 6y ago
    26GW is the thermal capacity that the market would like have had, IF there had been sufficient natural gas. [1] And that ERCOT's extreme plan (worst case scenario) had only anticipating loosing [2] 14GW of 'thermal' (i.e. mostly natural-gas) capacity. So 'lost capacity' was 2x the worst case anticipated. Estimates are that supply was about 20GW below peek demand.[3] Sources: MIT trained Princeton Professor who was tweeting real time data from ERCOT and is one of the nations leading researchers on energy systems, grids, and reliability. I highly recommend all of these threads: [1] https://twitter.com/jessejenkins/status/1361348544154664961 https://twitter.com/jessejenkins/status/1361348544154664961 [2] https://twitter.com/JesseJenkins/status/1362062037275279363 https://twitter.com/JesseJenkins/status/1362062037275279363 [3] https://twitter.com/JesseJenkins/status/1362063819858714633 https://twitter.com/JesseJenkins/status/1362063819858714633
- imtringued 6y ago
  >Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. >I ask because I broadly understand ERCOT to have delivered the lowest prices These two statements are the opposite of each other. Low costs because no winterization. Low costs because the grid is unreliable.
WalterBright 6y ago
If the consumer retail electricity rate was allowed to float minute by minute, there'd be no need for "peaker" plants. The notion of fixed electricity rates is the source of most of the problems. After all, there are regular events where oil refineries go off like, burn down, blow up, etc., and yet I'm still able to buy gas because the pump prices go up, reducing demand to match the supply. Note that this big freeze also impacted gas deliveries, and gas prices went up, and no shortages. A fixed pump price would have produced shortages and lines. Whenever there are shortages, there's almost always a fixed price in there causing the problem.
- sep_field 6y ago
  One problem with this is it forms a regressive structure where poor people are priced out while rich people get to keep consuming at whatever rate they can stomach. It would work better and much more fairly if the floating rate was scaled by the net worth of the customer.
  - AnthonyMouse 6y ago
    That's completely defeating the purpose of the price signal, which is to cause whoever is the most price sensitive to cut usage. By charging less to the people who are most price sensitive, the average price charged in order to deter usage would have to increase dramatically. It also creates ridiculous perverse incentives where people with little money waste electricity in the midst of a shortage because they're not being charged the market price for it, forcing cuts in actually productive alternatives.
    - sep_field 6y ago
      You are right it creates perverse incentives, but so does the current system. For instance check this article [0] that shows pictures of Houston's skyline during the recent power outages where completely empty skyscrapers are wasting power while ordinary people freeze. I'd rather have poor people using electricity than rich corporations. At least keeping people warm is productive. [0] https://heavy.com/news/photos-houston-skyline-lit-up-power-outage/ https://heavy.com/news/photos-houston-skyline-lit-up-power-o...

mrDmrTmrJ 6y ago

Respectfully, I don't see the issue as one of choosing to have a capacity market. There was ample excess capacity (at least 26GWs!), just no natural gas to run it as the natural gas infrastructure was frozen. So what was the nature of the failure? Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. Because this infrastructure froze, the state ran out of methane ('natural gas') to run it's massive excess capacity. Now this isn't hard to do, Siberia, New England, and Scandinavia all have massive natural gas infrastructure that's fully winterized. But Texas never required that winterization, so they ran out of actual methane when they needed it most and then the turbines could not turn. Said differently, the underlying issue is regulatory and 'energy system' one - having a capacity market (like PJM or New England ISO) would in no way have changed the outcome because the state would still have run out of methane. Do you see it differently?

WalterBright 6y ago
> Do you see it differently? Yes. If minute-by-minute retail electricity pricing was there, then there'd be a large incentive to winterize the fuel supply, because the ones who didn't would lose out on the profits from higher electric rates from the ones who did.
- kristjansson 6y ago
  Aren’t the generators already selling into a spot market that saw a multi thousand percent price increase in this demand peak, and are thus so incentivized? Providers AIUI are not responsible for any physical infrastructure, they’re selling volatility reduction by buying power from generators at spot and and sending it down publicly managed lines to customers for fixed rates. I buy your point up thread that more responsive retail pricing would’ve reduce demand faster[1], but I think generators just failed to foresee the failure points of their systems and the potential severity of winter events despite significant incentives to do so. Since the spot price hit its statutory cap, you might argue that the limit on potential windfall profits rendered winterization ROÍ negative - which might be true but if the only way to keep the lights on is to let the generators plan on pillaging a state in crisis, the state might want to step in to provide support beforehand. [1] leaving aside the point the ‘reducing demand’, in this instance, means poor people are cold or worse.
raisedbyninjas 6y ago
Is 26GW the actual surplus capacity? My understanding is the number of homes without power that were not part of intentional blackouts would have surpassed grid capacity. This aligns with heating taking more power than summer cooling. It's normal for Texas to have a few blackouts per summer season due to demand.
- mrDmrTmrJ 6y ago
  26GW is the thermal capacity that the market would like have had, IF there had been sufficient natural gas. [1] And that ERCOT's extreme plan (worst case scenario) had only anticipating loosing [2] 14GW of 'thermal' (i.e. mostly natural-gas) capacity. So 'lost capacity' was 2x the worst case anticipated. Estimates are that supply was about 20GW below peek demand.[3] Sources: MIT trained Princeton Professor who was tweeting real time data from ERCOT and is one of the nations leading researchers on energy systems, grids, and reliability. I highly recommend all of these threads: [1] https://twitter.com/jessejenkins/status/1361348544154664961 https://twitter.com/jessejenkins/status/1361348544154664961 [2] https://twitter.com/JesseJenkins/status/1362062037275279363 https://twitter.com/JesseJenkins/status/1362062037275279363 [3] https://twitter.com/JesseJenkins/status/1362063819858714633 https://twitter.com/JesseJenkins/status/1362063819858714633
imtringued 6y ago
>Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. >I ask because I broadly understand ERCOT to have delivered the lowest prices These two statements are the opposite of each other. Low costs because no winterization. Low costs because the grid is unreliable.

WalterBright 6y ago

If the consumer retail electricity rate was allowed to float minute by minute, there'd be no need for "peaker" plants. The notion of fixed electricity rates is the source of most of the problems. After all, there are regular events where oil refineries go off like, burn down, blow up, etc., and yet I'm still able to buy gas because the pump prices go up, reducing demand to match the supply. Note that this big freeze also impacted gas deliveries, and gas prices went up, and no shortages. A fixed pump price would have produced shortages and lines. Whenever there are shortages, there's almost always a fixed price in there causing the problem.

sep_field 6y ago
One problem with this is it forms a regressive structure where poor people are priced out while rich people get to keep consuming at whatever rate they can stomach. It would work better and much more fairly if the floating rate was scaled by the net worth of the customer.
- AnthonyMouse 6y ago
  That's completely defeating the purpose of the price signal, which is to cause whoever is the most price sensitive to cut usage. By charging less to the people who are most price sensitive, the average price charged in order to deter usage would have to increase dramatically. It also creates ridiculous perverse incentives where people with little money waste electricity in the midst of a shortage because they're not being charged the market price for it, forcing cuts in actually productive alternatives.
  - sep_field 6y ago
    You are right it creates perverse incentives, but so does the current system. For instance check this article [0] that shows pictures of Houston's skyline during the recent power outages where completely empty skyscrapers are wasting power while ordinary people freeze. I'd rather have poor people using electricity than rich corporations. At least keeping people warm is productive. [0] https://heavy.com/news/photos-houston-skyline-lit-up-power-outage/ https://heavy.com/news/photos-houston-skyline-lit-up-power-o...