ERCOT market design, renewable energy subsidies, “does not pay enough for reliable generation”

Many reports have been published about the causes of the deadly blackouts that hit Texas a year ago. Corn a new report from the Texas chapter of the American Society of Civil Engineers contains one of the best – and most succinct – analyzes of why the ERCOT Grid nearly collapsed on February 15, 2021.

The executive summary of the 123-page report states, “This assessment concludes that 1) the revenue shortfall of ERCOT’s energy-only market model, influenced by federal and state subsidies from intermittent resources, fails to adequately pay for reliable and distributable generation and, 2) that these shortcomings in the market model are the main contributing factor to making the ERCOT system less reliable.

Here it is. In plain English. Some of America’s top engineers – not politicians, journalists or renewable energy proponents – say that ERCOT’s market design simply does not guarantee reliability. This assessment rhymes with what Ed Hirs, an energy researcher at the University of Houston, wrote in an article published last month. Hirs said the ERCOT system failed because generators failed to invest in winterization. Why not? It’s simple: they weren’t making enough money to justify that. He wrote: “For eight of the 10 years to 2021, the average wholesale electricity price at ERCOT was too low for generation companies to generate returns on capital. Therefore, they had every interest in not investing in wintering. The ERCOT market rewarded volatility at the expense of reliability, despite a decade of warning.”

One of the biggest reasons producers have been unable to get a return on their investment is the flood of subsidized renewables that have come to Texas. And this problem is about to get worse. As I pointed out in these pages last week, the total amount of wind and solar generation capacity on the ERCOT grid could total over 70,000 megawatts by the end of next year. If this happens, the ERCOT grid will have more weather-dependent renewable energy generation capacity than any form of gas-fired generation. All of this intermittent capacity, the construction of which is fueled by federal subsidies far greater than those given to hydrocarbons or nuclear, will further undermine the integrity of the Texas power grid. If all of the planned solar is indeed added to the ERCOT grid, Texas could have about as much solar as there is currently in California.

Indeed, the solar sector receives approximately 250 times more federal tax incentives per unit of energy produced than the nuclear industry. Moreover, as I explained in these pages in 2020, the wind industry earns about 160 times more than the nuclear sector. These numbers are based on 2018 data from the Congressional Research Service which I combined with power generation data published by BP.

These lavish federal subsidies, along with a flawed market design, have allowed weather-dependent renewables to “free” dispatchable output from power plants that burn natural gas. The report of the civil engineers underlines the importance of this problem. In one of its recommendations, it states that policy makers should “ensure that the energy-only ERCOT model does not negatively impact the natural gas industry’s higher reliability capacity market, whether intrastate or interstate. Like any customer, the electrical industry should not be given a free ride on a system paid for by others. Producers should be required to pay for the quality of service they require and not depend on subsidies from the natural gas industry.

It should be noted that ERCOT’s dependence on gas generator sets has increased in recent years as approximately 6,200 megawatts of coal-fired capacity on the ERCOT grid has been retired between 2016 and 2020. Furthermore, the retirement of these coal-fired plants, combined with the ERCOT grid’s growing reliance on weather-dependent renewables and natural gas, is occurring at the same time that Texas (unlike most other states) is experiencing significant growth in demand. Since 2010, electricity generation in the state growing at around 1.5% per year.

In the body of the report, the engineers recommend the formation of a market mechanism that “rewards reliability whether a unit is shipped or not, balanced with reasonable electricity prices for consumers to replace the current failed market. power-only, with subsidized intermittent generators, which depends solely on scarcity pricing to provide sufficient revenue for reliability investments The report goes on to say that weather-dependent renewables are reaching tipping point on their part “of the energy market and should bear the cost of adverse impacts on system reliability through a reliability standard that requires funding dispatchable generation reliability payments with the system.”

The report is thorough, clearly written and full of interesting data. (Texas has 7,056 water systems, the majority of which serve less than 500 people.) It covers the need to invest in black-start capacity, “the growing interdependence between infrastructure sectors” (read: gas producers/oil pipelines and electricity generators), water and sanitation infrastructure, the “water-energy nexus” and the need to prioritize a “culture of reliability and resilience”. About the last item, the report states that “reliability and resiliency are not performance outcomes that can be inspected or audited in the system. Reliability must be built into day-to-day operations, like how a company successfully approaches security. »

The report is full of facts and provides a good overview of the state’s critical infrastructure. I’ll end with another sentence that jumped off the page: In a summary of Chapter Four, which discusses the need to establish a “foundation of reliability-oriented regulations and incentives,” engineers state that “subsidizing activities that cause reliability impacts must be eliminated. Amen to that.

Again, here is a link to this outstanding report.

Abdul J. Gaspar