Why Texas Can't Handle Freezing Weather for a Week
Becky Diffen
Partner at Norton Rose Fulbright | Renewable Energy & Infrastructure Transactions
I’ve had many friends and colleagues reach out to me about the situation down here in ERCOT, so I put some thoughts together to share with them. I then realized others might benefit from this summary as well, so here are some brief thoughts and analysis based on real data, not the various headlines you might read. I've also included links to some articles I found particularly useful (and unbiased) in analyzing the situation.
“It gets this cold all the time in other parts of the US, what is wrong with Texas?”
We don’t build things down here for bitter cold, we build them to withstand severe heat. Our houses are not meant to hold in heat, they are built to hold in cold air during the summers. We have no way of “weatherizing” and turning off sprinkler systems and outside faucets. The best we’ve been able to do is drip our internal faucets and hope the pipes that run along outside walls don’t freeze. It rarely snows or majorly ices in Austin or Houston, and when it does it only lasts a day or two and then returns to 70 degrees, so everyone just takes the snow or ice day and doesn’t leave the house. We don’t have snow plows or salting trucks to salt the roads so we have to wait until it warms up.
Our thermal plants aren’t built with the same insulation as they are in the north. Our wind turbines are not equipped with cold weather packages. So of course the gas, coal, and wind projects are all still operating in Minnesota and New York even though it’s way colder – they were built that way. As climate change leads to more severe weather across the globe, it does raise a great question of whether we should spend more on infrastructure to prepare for a broader range of harsher conditions.
Note that we had this same issue with a lot of coal and gas plants during a major freeze in 2011 in Texas. FERC staff recommended that generators in the southwest should do a better job of preparing for the winter season in the future. This has not happened. That was also a much shorter event in duration.
· See NERC report suggesting they should prepare for this: https://www.nerc.com/pa/rrm/ea/ColdWeatherTrainingMaterials/FERC%20NERC%20Findings%20and%20Recommendations.pdf
“Frozen Windmills”
Certain political sources have tried to blame the lack of generation on “frozen windmills.” While it is true that some wind farms in West Texas experienced icing and were not able to produce, the lack of expected wind generation is a very small piece of the puzzle as to where the lack of generation is.
We’re down 30-35 GW of generation (for context, ERCOT at peak is usually between 60-70 GW).
· ~1.5GW of that is wind due to the icing issues
· Solar has been over performing, so making up some of that
· Over 30 GW of thermal is down. A lot of gas plants are down because they can’t get the gas fuel supply (gas for heating is being prioritized and gas production facilities are frozen, plus the level of demand for such a sustained period of time is unprecedented).
· Other thermal generation is also down due to the icing issues – this is the same issue we had in 2011 – unfortunately they have not upgraded those plants yet, so they still don’t operate during these temperatures
“Blame ERCOT/Deregulation”
It’s ironic that everyone in the state suddenly knows what ERCOT is (and most are ready to sue and blame ERCOT for everything). Not the meme I expected to see on Facebook today:
Why aren’t outages rotating the way they are supposed to? We don’t have full clarity into this issue. We do know that there are some circuits they don’t want to take offline because they contain critical infrastructure such as hospitals. In Austin, they have told us that Austin Energy has been told to shed so much load that it must shed all non-critical circuits, meaning there isn’t anyone to rotate the outage to. I have friends in Austin, Dallas, and Houston who have all been without power (and heat) for close to 48 hours at this point. All in sub-freezing temperatures. It does not make sense why they aren’t being rotated in and out, and I expect we will see a lot of focus on this issue when people dig in after the fact.
The PUCT has been issuing orders, including one that has caused much consternation requiring that prices stay at $9,000 MWh for as long as rolling blackouts are in place. We expect a lot of fallout from this order – stay tuned!
Most commentators who actually understand the market don’t think this has anything to do with deregulation. It is a systemic planning failure and a prioritization of cheap power over building for the worst case scenario. It is a disastrous weather event similar to a hurricane. Hard for those in the north to understand since this seems normal to you, but unprecedented down here and therefore not planned for. Now the industry (and potentially the state legislature, PUCT, and ERCOT) need to decide if this type of weather event is one that should start planning for in the future since climate change makes it more likely to occur again. (Note that global warming leads to warming in the poles faster than warming everywhere else, which is what is shifting our weather patterns and causes these polar vortexes to occur with far more frequency).
Project finance, hedges, and what's next
We are helping clients deal with these emergency situations. Clients with hedges that can't generate (whether due to icing or lower wind than expected) have to buy power to make up for it at $9,000 MWh. You can see how doing this for days on end would cause problems. Norton Rose Fulbright has an amazing team of experts working with clients to search for solutions.
There are lots of important issues and potential solutions to explore. Transmission is key. Energy storage has a role to play. Resiliency needs to become a focus.
What's it like on the ground in Texas right now?
Most all of our team in Austin and Houston have had some level of power and/or water outages. Most have not left their houses since the icing started on Thursday. In the worst case scenarios, some have been without power or water for 48 hours with no end in sight for at least another 2 days. One issue is that the roads in Austin are so treacherous that just driving to somewhere with water and power is a huge risk (again, no salt trucks and lots of elevated roadways and hills). We have more freezing rain coming in tonight and tomorrow, so it is going to get worse before it gets better.
Today was the best day weather-wise we can expect since last Thursday morning and until this Friday, so the grocery stores opened for a few hours. Here is what people saw when they arrived, after braving very bad roads in 4WD vehicles. Why didn’t we prepare? Because this was supposed to be a 3 day weather event. There was never any expectation that this would go on for over a week.
It's a fascinating time to be living in Texas and working in the power industry. This is one week the industry won't forget for a long long time. Fellow Texans - stay warm!