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September 21, 2021

Is the Texas Grid Prepared?

By Joe Sestak, Manager, Client Services - Supply, and Elana Knopp, Senior Content Writer

This post was originally featured in our September 2021 Monthly Monitor, which includes articles and analysis for the natural gas, electric, crude oil, and sustainability markets, and Q3 2021 Regulatory Review, providing updates on the federal and regional levels. To sign up for these distribution lists, click here.


 

In mid-February, Winter Storm Uri funneled freezing air across the mid-continent region, pushing deep into Texas and as far south as Mexico. The atmospheric development, called a Polar Vortex, unleashed not only extreme below-normal temperatures, but these abnormally cold conditions were sustained for a full week.

As a result, wholesale prices frequently hit the maximum daily cap of $9,000/MWh for approximately 77 hours–from midnight on February 15 to the morning of February 19, according to the U.S. Energy Information Administration (EIA). The extreme temperatures, coupled with the length of the storm, dramatically exposed the current vulnerabilities of all components that make up the ERCOT grid.

A “perfect storm” of extreme temperatures, lack of winterized renewable energy generation and natural gas wellhead freeze-offs have been cast as the culprits for the February disaster, which led to millions without power and water and dozens of deaths. While these factors were undoubtedly contributors to the lack of available generation, subsequently resulting in extreme hourly prices and rolling blackouts, they were not exclusively responsible for the disaster.

At the worst point of the storm, nearly half of ERCOT’s total installed capacity was in forced outage, approximately half of which were gas units. Additionally, as the cold weather moved in, it is reported that wind power’s share of electricity generation in Texas dropped from 42% to 8% due to freezing conditions. As a result, frequencies on the grid fell to potentially catastrophic levels on February 15th, where it has been reported that ERCOT was minutes away from a total grid collapse.

While the economic impacts of the storm are still being determined, increased costs to utilities, municipalities, industrials and residents are estimated to be in the billions. As of this writing, Brazos Electric Power Cooperative–the largest and oldest electric power cooperative in Texas– has filed for bankruptcy, citing the $2.1 billion invoice it received from ERCOT for electricity costs for the week-long event. To put that into context, Brazos stated that the invoice was nearly three times the power costs for all of 2020.

Additionally, CPS Energy, a gas and electric utility owned by the city of San Antonio, has filed a lawsuit against ERCOT for “excessive illegitimate and illegal prices.”

While the impacts of Uri will inevitably continue to reverberate throughout the electricity and natural gas markets for years, Texas lawmakers have taken steps to address the issue with the recent passage of a number of new laws aimed at mitigating future risk to the power grid.

The legislation, which went into effect on September 1, 2021, overhauls the governance structure overseeing the electric market, also mandating the creation of the Texas Energy Reliability Council (TERC) and an Electricity Supply Chain Security and Mapping Committee.

Additionally, there will be critical changes to the electric market itself, including amendments to the transmission planning and approval process, as well as to the procurement and pricing of wholesale energy and reliability products. Biennial grid reliability assessments will now be mandatory to address future grid disruptions, while power generators and utilities will be required to weatherize their equipment.

The Public Utility Commission of Texas plans to finalize the winterization standards in November 2021, requiring generators that failed to operate during winter storm Uri to make their upgrades by December 1st. Non-compliance with some of the new regulations could result in fines of up to $1 million per day. The legislation will also secure financing from the state’s primary budget reserve to cover the significant unpaid balances of electric cooperatives and retail energy providers to the wholesale power market, which total about $3 billion, according to a recent Moody’s update.

But significant issues still need to be addressed, including ERCOT’s lack of interconnection to the interstate power grid, winterization of natural gas supply, as well as the need for much stronger planning. This will be paramount as renewable energy’s market share of the overall generation mix increases and more coal, nuclear and gas-fired generation is retired. Without adequate firm generation, the grid will continue to be vulnerable and scenarios like what took place during winter storm Uri may occur more frequently.

 


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