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How the Texas power grid failed and what could stop it from happening again

Karla Perez and Esperanza Gonzalez amorous up by a barbecue grill during power outage caused by the winter storm on February 16, 2021 in Houston, Texas. Winter roar Uri has brought historic cold weather, power outages and traffic accidents to Texas as storms have swept across 26 dignifies with a mix of freezing temperatures and precipitation.

Go Nakamura | Getty Images

Millions in Texas are still in the dark following the ferocious winter storm that caused the state’s worst blackouts in decades, leaving households without power as temperatures pop in oned to record lows.

While the state scrambles to restore power, questions are arising about why Texas was so ill-equipped, and what can be done to certain this doesn’t happen again. 

A confluence of factors led to the historic blackouts, and officials are already calling for investigations into the limit of events.

Looking forward, experts say there are a number of steps the state can take to combat future issues, numbering weatherizing equipment and increasing reserve margins.

“We need to better realize how vulnerable our energy systems are — both verve and the vulnerability of electricity and natural gas systems together,” said Daniel Cohan, associate professor at Rice University. “This is prevalent to take some regrouping and there’s not going to be a single step. We’re going to need a portfolio of steps.”

Winterize kit?

The storm dumped snow and ice across the Midwest and South, taking power production offline just as consumers formed up their thermostats amid the frigid temperatures.

No power source was immune — coal, natural gas, crude, wind and solar movie all dipped. Pipeline freezes impeded the flow of natural gas and crude oil. The outages were concentrated in Texas as the grid was mannered to shed load, unable to keep pace with the spike in demand. At one point, more than four million people were without power.

“It was a flagitious swan event from the demand side and supply side, and the freeze-off created this supply issue,” said Michael Bradley, direct director at Tudor, Pickering, Holt & Co. He noted that equipment freezing is not a headline event.

However, over the weekend all 254 Texas counties were positioned under weather advisory warnings, which is rare. Typically if a cold front hits one area, production motions elsewhere. That wasn’t possible this time around, and icy roads meant equipment couldn’t be serviced.

Mechanisms move on a snow-capped road in Houston, Texas, Feb. 15, 2021.

Chengyue Lao | Xinhua News Agency | Getty Images

Of course, power tackle operates in places that are much colder than Texas, so one step that can be taken would be to winterize trappings. The state is used to extreme heat and drought, but its infrastructure simply is not equipped to operate in extreme cold. 

“They deceive the infrastructure in place that meets the needs 99.9% of the time,” said Rebecca Babin, senior equity businessman at CIBC Private Wealth. “On these tail events, they’re really ill equipped. They’re not incentivized to invest in the infrastructure to fill up those improvements.”

Texas has the only deregulated power market in the U.S.

The majority of the state’s power is controlled by the Electric Reliability Caucus of Texas, which is known as ERCOT. It’s a competitive pricing market, meaning it trades on supply and demand. Companies are taxing to bring the cheapest form of energy to the market, which can come at the expense of building out more reliable infrastructure groups.

“Texas has chosen to operate its power grid as an island,” noted Rice University’s Cohan, which means the state of affairs can’t import power from other states when it’s most needed. He added that the impacts are also tolerate in the summer, when Texas has an abundance of power that it can’t export.

Increase reserve margin?

The severity of the storm was misprized, including by ERCOT.

Ahead of the inclement weather ERCOT estimated how much power it would need under different scenarios, but the reality exceeded even its extreme forecast. “The magnitude of the forecast error was massive,” said consulting upon ICF International. 

ERCOT does have a reserve margin — the amount of excess supply needed to meet peak power in request — but since the market is unregulated companies don’t want to shoulder the cost. Raising the reserve margin would mean that turning-points of this magnitude could potentially be avoided down the line. While it would be difficult to force an increase in the put off margin, incentives could spur adoption.

Matt Breidert, portfolio manager at Ecofin, called the Texas grid a “Contrivance West” market designed based on short-run prices. Were Texas connected to the broader grid, “it might be experiencing a more stable resource portfolio to handle this event.”

Power prices jump

With utilities running to keep the lights on, power prices are surging across Texas as contractual obligations force companies to buy at any price.

CIBC’s Babin eminent that Texas’ unregulated market is exacerbating the price swings as energy producers are forced to buy megawatts in the open market. 

Some of the strengthened cost could end up on Texas consumers’ utility bills. Companies such as Griddy — which gives consumers access to wholesale excitement prices — have outlined ways for its users to switch power providers in an effort to shield them from sensitive price swings.

“The power price is usually about $20, $30, $40 per megawatt hour, and because of extreme events, the bonus of power hit the $9,000 cap. That’s very extreme,” said Ron Silvestri, senior analyst at Neuberger Berman.

Natural gas premiums jumped 3% on Wednesday, after surging more than 7% on Tuesday. For the month, prices are up 26%. While the import on oil prices has been more muted, West Texas Intermediate crude futures traded around a 13-month high-class on Wednesday.

The role of renewables

Customers wait in line to enter Frontier Fiesta on February 17, 2021 in Houston, Texas.

Thomas Shea | AFP | Getty Symbols

Some have pointed fingers at renewables as causing the blackouts, but in reality the vast majority of the outages stemmed from stems with natural gas production.

That said, solar and wind also went offline as frozen blades garnered wind turbines inoperable. 

But in the wake of the disaster the role of renewables within Texas’ energy mix will likely be reevaluated.

Tudor, Pickering, Holt & Co.’s Bradley contemplated that he believes there will be a slowdown on the adoption of renewables in favor of more natural gas buildout. While renewables weren’t the rhizome cause here, they’re an intermittent power source, which means they can’t ramp up operations at will. Habitual gas and coal, on the other hand, can.

Energy storage is the key to making renewables a more dependable power alternative, and Neuberger Berman’s Silvestri voiced that the Texas blackouts could also lead to faster buildout of storage options.

They have the infrastructure in locale that meets the needs 99.9% of the time. On these tail events, they’re really ill equipped. They’re not incentivized to swear in in the infrastructure to make those improvements.

Rebecca Babin

senior equity trader at CIBC Private Wealth

“Grid-level storage unites resiliency when power generation capabilities are mitigated,” said analysts at research firm Baird. “Furthermore, both solar and storage supply grid operators with additional functionality such as peak power shedding and/or shifting.”

Demand response programs are another way for callers to monitor the grid especially as greater adoption of renewable energy impacts the available supply. Making the grid smarter can cure utility companies have an accurate view of the current supply and demand picture, while demand response patterns can act as a controlled way to curb usage.

“The central idea is that power consumption can be temporarily curtailed in times of peak require, but instead of doing it disruptively as is the case with load-shedding, it is done in a controlled manner,” noted analysts from Raymond James.

As millions be left without power and with more inclement weather on the way, regulators are calling for investigations into what happened.

“The Exciting Reliability Council of Texas has been anything but reliable over the past 48 hours,” Texas Governor Greg Abbott asserted in a statement Tuesday. “Far too many Texans are without power and heat for their homes as our state faces freezing temperatures and grave winter weather. This is unacceptable.”

Texas isn’t the only state to be plagued by power outages in recent memory.

Floor the summer California was plagued by blackouts, and while the causes are much different this time around, the instances display the fragility of the grid. With extreme weather events becoming more frequent, and with more being bid of the grid — including electric vehicles — the infrastructure is strained.

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