Who and what to blame for the February electric grid freeze in the Lone Star State? The Electric Reliability Council of Texas? The state public utility commission? The generators who haven’t winterized their plants? Too much wind power? The autarky of the Texas electric grid? The deregulation of the Texas electric grid? No electric generation capacity market?
Fingers have pointed at all of those, both serially and collectively. But a new and persuasive analysis comes from economist James Bushnell in a paper for the University of California’s Energy Institute at Haas, “To Fix the Power Market, First Fix the Natural Gas Market.”
Natural gas failed Texas, Bushnell argues, and the electric system was a victim, not a cause, of the February failures. “For those of you who don’t follow the energy industry that closely, natural gas is not electricity. The natural gas system in Texas isn’t regulated by ERCOT, wasn’t deregulated by George W. Bush, and to my knowledge doesn’t use wind turbines. Those pointing to the superiority of electricity market designs outside of Texas need to consider how those designs and regulations would fare if they ran out of natural gas,” he writes.
Rather, says Bushnell, look at the politically potent Texas gas industry for the sources of the problem. “In Texas, the failure of the more-than-adequate capacity to generate electricity was shared across all the technologies and fuel sources. But by far the biggest shortfalls came from the gas-fired power plants, and much of that shortfall was because those plants couldn’t get gas. This is not a new problem, but Texas was by far the most disastrous manifestation of the problem.”
Electricity markets in states and regions with independent system operators (in Texas, that’s ERCOT), Bushnell argues, are transparent and focused on reliability. That’s not true for gas. “The natural gas market,” he writes, “operates on a combination of non-transparent over-the-counter (OTC) trades and exchange-based standardized contracts in a handful of locations. And the gas markets that are transparent don’t do weekends.”
What does the lack of transparent gas markets mean? Bushnell says, “The absence of liquid transparent markets can be a problem when crises hit during, say, Presidents’ Day weekend. Everyone, including gas generators, are scrambling to get gas and it’s not clear exactly who to call and what to pay them. In that kind of chaotic market environment the gas that is available is not likely to flow to the uses where it would do the most good.
In that kind of situation, electricity generators can’t get gas, so load is curtailed, so gas wells lose power, so generators can’t get gas, …. You get the point. When the Governor bans exports by executive order, it’s a sign that something is seriously wrong in the market.”
There is also severe tension between one of the gas industry’s traditional and still dominant markets, heating, and the growing demand for gas to generate electric power (see New England). “We still lack the right mechanisms for allocating scarce gas between these competing demands,” writes Bushnell. The lack of transparent prices is part of the problem. Another is the incentives of the natural gas distribution companies responsible for meeting the heating needs of their ‘core’ residential and commercial customers. They would face holy hell if they curtailed their heating customers, but can lay low when the power is shut off to those customers instead.”
What to do? The Trump administration’s reliability plan – to subsidize deregulated coal and nuclear – was nonsensical. “Even ignoring the climate implications and the frozen coal piles, keeping billion-dollar plants operating beyond their economic lifetime to deal with a one-week in three-year problem can’t make sense. Gas storage, or even on-site dual-fuel gas/oil capability would probably make more sense.”
Even more sensible is “to make sure the gas that is available is being used in the way that creates the most benefits and minimizes the risk of another hell-freezes-over week in Texas again. A more reliable and transparent gas market would be a good place to start.”
–Kennedy Maize