DALLAS — After a 2021 winter storm shut down much of the Texas grid and killed at least 246, there was a reckoning in Austin.
For two decades, the state had been creating cheap, abundant electricity, and then lawmakers decided to pivot and put reliability first.
They installed new regulators, who have managed oversight more aggressively and adopted measures to boost reserves, keep plants online and encourage customers to cut back when grid conditions get tight. They also raised the funding available to pay big users to slash their loads — to $75 million, up from $50 million.
Instead of having a “crisis-based business model” that rewards generators when supplies are most scarce, Texas is moving to a “reliability-based” model, said Peter Lake, named chairman of the Texas Public Utility Commission less than two months after the storm.
“The entire world is watching,” Lake told a House committee in June. “But more importantly, we have to get this right because our economy demands it and our citizens deserve it.”
So far, so good — with the big caveat that it’s early August and no one is declaring mission accomplished.
But after weeks of 100-degree temperatures and many record-breaking days of demand, the lights have stayed on and AC units have kept humming.
Many questions remain, including one that will linger beyond the dog days of summer: What’s the price of this new reliability, today and in the future?
“We’re not going to see it as a line item on our electric bill,” said Tim Morstad, associate state director for AARP Texas. “But it’s gonna be a lot of money. And we don’t even know if it’s justified.”
Lake estimated the costs would be $1 to $2 a month per household, depending on which measures are included in the tally. The independent market monitor, which evaluates the state’s wholesale market, estimated the additional costs at about $1.5 billion this year.
The reliability measures are the first phase of reforms adopted by the PUC and the grid operator it oversees, the Electric Reliability Council of Texas, known as ERCOT. About 90% of Texas’ electric demand goes through ERCOT, serving over 26 million residents.
Regulators increased the amount of power reserves to 6,500 megawatts on a typical day and 7,500 on days with higher uncertainty, up by roughly 2,000 to 3,000 megawatts. More standby power helps ensure the grid will have enough electricity from natural gas and coal plants if wind and solar power are lagging.
ERCOT is routinely ordering generators to fire up earlier when loads are expected to rise. Power plants also were required to be hardened against extreme weather, and some have added onsite fuel for extra reliability.
Regulators reduced the maximum hourly payments in the ERCOT market and altered the payment curve, aiming to draw electricity onto the grid sooner.
They also started appealing to residents and businesses to cut back earlier on days when demand threatens to outstrip supply.
“We’ve seen the results,” Lake told the House committee. “In the last 12 months, we’ve had at least six days where the grid reserves were so low that if we had not built in that margin of safety, and those extra reserves, we would have been on the brink of rolling blackouts.”
Since those comments, the grid has come close to emergency conditions two more times, on July 11 and July 13. On July 13, ERCOT managed to stave off a crisis by cutting demand by 4,300 megawatts, enough electricity to power 860,000 Texas homes.
While some businesses were paid to cut power during peak hours, others volunteered to reduce their load. ERCOT asked transmission companies to reduce voltage slightly to shave demand. It issued a conservation alert for 2 p.m. to 9 p.m., asking residents and everyone else to cut usage by turning up thermostats, closing blinds and more.
“That makes eight times” the grid avoided an emergency because of reliability measures, said interim ERCOT chief executive Brad Jones in an interview. “Our new mindset is: ‘Let’s not allow ourselves to get into an emergency condition and then try to dig out.’”
During the tightest hour on July 13, reserve margins fell to 2,408 megawatts, about 100 above the first level of emergency action, according to data from ERCOT. If reserves fall below 1,000 megawatts, ERCOT can order rolling blackouts.
That 4,300-megawatt reduction in demand, known as demand-response, was crucial.
“It’s an unsung part of the market,” Jones said. “It’s also a dispatchable resource.”
Dispatchable resources are highly coveted on the Texas grid, and they usually refer to power plants fueled by natural gas and coal. As long as the plants aren’t down for maintenance, they can be turned on and dispatched if other sources — primarily wind and solar power — don’t deliver as expected.
On July 13, during the tightest hour on the grid, wind delivered 14% of its capacity, ERCOT data shows. That’s a stark reminder of how West Texas wind often slows as the day heats up.
Solar delivered 57% of capacity during the tightest hour, in part because of cloud cover. And the grid’s dispatchable power, natural gas and coal plants, delivered 83% of capacity, according to ERCOT.
Every generating source has down times, but wind and solar present particular challenges. They’re much more intermittent than gas and coal plants, and those renewables have accounted for the vast majority of new generation in Texas.
Wind and solar have cheaper marginal costs, especially when the price of natural gas and coal are high, as they are today. Wind and solar offer many environmental advantages and have federal tax credits.
Texas has a deregulated power market. Private operators invest their money to build generation, hoping to earn a sufficient return by selling electricity into the grid. Customers pay only for electricity they buy, not the capital costs to build facilities, and many call it an “energy-only market.”
Over the past five years, ERCOT added about 15,000 megawatts of wind, 10,000 megawatts of solar and 1,500 megawatts of storage batteries, according to the independent market monitor’s latest annual report.
About 1,500 megawatts of gas-fired capacity was installed, offset by retirements of 900 megawatts of gas steam units. About 5,600 megawatts of coal capacity was also retired over the period.
“Investors are voting with their wallets,” said Daniel Cohan, an associate professor of environmental engineering at Rice University. “They find more profit opportunities and less risk in solar, wind and batteries than in adding more fossil fuel plants.”
Solar capacity could double or triple in the next few years, according to projects in the ERCOT pipeline. Wind is expected to add several thousand megawatts by 2024. And batteries could add over 4,500 megawatts in two years, based on the ERCOT pipeline.
“There could be far less reason to fire up inefficient gas peaking units,” Cohan said.
Gas plants accounted for just over half of ERCOT capacity last year, and from 2000 to 2017, they added over 18,000 megawatts to the grid. But since 2017, average annual additions have fallen by about two-thirds. Combined with coal retirements, the total available from these key dispatchable resources has declined slightly.
“We’ve had staggering growth in our renewable fleet — wind and solar,” the PUC’s Lake said. “And not only no growth in our dispatchable-on-demand fleet, but negative growth.”
That’s a problem when renewables don’t deliver, especially with Texas’ rapid growth. Thanks to the increase in population and high temperature, ERCOT’s peak demand is already over 7% higher than last year.
It’s the biggest one-year gain since at least 2000. That’s partly related to the rebound from the pandemic economy, but it underscores the need for plenty of reliable power.
In the past year, regulators focused on improving operational reliability. Their next phase will be a redesign of the competitive electric market.
A primary goal is to attract more generation to fill the gaps when wind and solar fall short, and when dispatchable units are down for maintenance and other reasons.
Lake said he wants customers to get the cost savings of renewables with the reliability of dispatchable sources, and that means attracting new thermal generators and holding on to older ones.
“Our job in this market redesign is to strike that balance,” Lake said.
The need for more conventional plants is clear. To meet the recent reliability push, the fleet of gas and coal plants is running harder than it has ever run, said Michele Richmond, executive director for the Texas Competitive Power Advocates.
Many plants are over 40 years old, she said, and running them too hard is similar to running a car too long without proper maintenance.
“That increases the chances that something is going to break catastrophically,” Richmond said. “That could be so costly to repair that it makes more sense to retire the resource than to fix it.”
ERCOT’s current operational approach is not compatible with an energy-only market, said the independent market monitor. It diminishes revenue for generators and makes it hard to attract investment.
ERCOT’s Brad Jones agrees: “The market is not currently providing adequate revenues to both attract and retain the dispatchable generation.”
But that’s a fix for later. For now, it’s all about balancing dispatchable power and renewables and keeping the grid stable through a hot summer and fall.
“We’re in this transitional phase,” Jones said. “We’re making sure we’re running the system as reliably as possible. But we know something has to change.”
