Houston has recorded a half-dozen 95 degree-plus days so far this summer, and we’re weeks away from August, the hottest month of the year. Last year, the second hottest on record in Texas, included a 10-day stretch of triple-digit temperatures.
Which raises a question. Is the Texas power grid, managed by the Electric Reliability Council of Texas, up to the task of keeping the lights on and the air conditioners humming? Today, total installed generation capacity is about 78.6 gigawatts while ERCOT is predicting peak demand this summer of 74.9 gigawatts. That leaves a very small reserve margin. Should several large power plants go offline for maintenance or a broken gas line, we will likely see brownouts or blackouts.
Unlike most other states, the demand for power is growing steadily in Texas, thanks to the continuing influx of people and businesses as well as our booming energy industry. (We sometimes forget that it takes energy to make energy). However, investment in new natural-gas plants has lagged. In addition, several large coal plants have recently been shuttered, which means the loss of nearly five gigawatts of capacity.
At the same time, thanks in part to federal and state tax incentives, investment has poured into renewables. Texas now has more installed wind generation – nearly 25 gigawatts – than California, Iowa and Oklahoma combined.
Relying on wind for nearly one-third of Texas’ electricity poses serious reliability issues to the power grid. Access to inexpensive wind power is great when the wind is blowing. But often in the late afternoons of July and August, when demand for power is strongest, the wind dies down in West Texas, where most of the turbines are installed. That is why it’s so important to maintain a healthy reserve margin with baseload plants, which supply electricity continuously. Texas needs coal, nuclear, and large gas plants.
Despite the huge growth in renewables, coal and nuclear still account for 36 percent of Texas’ generation capacity, while natural gas is dominant at 52 percent. However, in our deregulated “energy only” price environment, power companies are rolling the dice if they invest in new baseload generation. Because of cheap natural gas, wholesale power prices are often too low to justify, or even sustain, such investments. For example, Panda Temple Power, a relatively new 758-megawatt gas-fired, combined-cycle power plant, filed for bankruptcy in 2017 because it could not generate enough cash to service its debt.
Texas is not the only state dealing with grid reliability. California, New England and New York are also struggling to keep the lights on due to the retirement of baseload generating plants. What is needed in Texas, and other states, are rate structures that acknowledge the value of baseload power to grid reliability.
ERCOT did double the wholesale price cap from $4,500 to 9,000 per megawatt hour some years ago in the belief this would induce more power plant investment. However, this has not happened. In some states that have deregulated their power markets, baseload plants are allowed to include a “capacity payment” or “resiliency charge” in addition to the energy charge to recapture part of their fixed costs. ERCOT should consider doing likewise to help keep coal and nuclear plants, as well as large natural gas plants, on the power grid.
With Texas’ population projected to grow twice as fast as the nation’s for the foreseeable future, electricity demand will grow in tandem. ERCOT estimates we will need at least 100 gigawatts of new power over the next 15 years to keep up with anticipated demand. Not all of those electrons can come from windmills and solar farms.
With luck, brownouts and blackouts can be avoided this summer by turning up our thermostats and voluntarily reducing power consumption during the late afternoon hours of peak demand. However, to ensure long-term grid resiliency for our fast growing economy, ERCOT needs to adopt a pricing scheme that acknowledges the value of baseload power plants.
Weinstein is associate director of the Maguire Energy Institute and adjunct professor of business economics in the Cox School of Business at Southern Methodist University.
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