What can the Texas power crisis tell us about the future of energy markets?

Severe winter weather in Texas caused the worst energy shortages in the United States since the 2003 blackout in the Northeast and Midwest. Millions of people suffered power outages, which frequently extended beyond 24 hours in areas with freezing temperatures.

Although the political and national debate is turning into a proxy debate on energy resources, the most immediate concern is that the current failure threatens public health and safety. Weather conditions are undermining critical infrastructure, amidst the further stressors of a global pandemic that has stressed national emergency services for a year.

The Texas power crisis has also highlighted the close ties between service delivery sectors — in this case, most starkly how the delivery of electricity impacts the delivery of water. As we cautioned following the comparably minor California rolling outages last summer, energy grid failures are complex and patience is warranted in diagnosing problems and prescribing solutions. Nevertheless, the situation as currently understood points to the need for new approaches to energy reliability, energy security, and risk during the ongoing energy transition.

Even as the post-event analysis grapples with these issues, the hard work of grid operators and utility workers to maintain what power there was is important to acknowledge.

The proximate cause of the current Texas power outage is widespread extreme winter weather impacting much of the United States. Texas was particularly hit hard relative to climate norms, setting new temperature low records across most of the state, with all counties under a winter storm warning. In terms of severity, the current event is a once-in-several-decades occurrence.

Although the role of climate change in the polar vortex remains greatly debated, climate change is expected to produce more similar winter weather, fueling future reliability concerns. It is also expected to produce much hotter weather, adding to the complexity of addressing concerns in Texas.

The severe cold is driving near-unprecedented demand for electricity. Due to the rarity of cold winters, businesses and residential consumers in the South Central U.S. largely rely on electricity for heat. Most existing electric heating systems become more inefficient in colder conditions, and the buildings and systems tend not to be well insulated or "winterized." As a result, demand for electricity in Texas grows more rapidly in winter conditions than in other states.

Before the major Texas power crisis, peak demand for the state was projected to be as high as 74 GW, potentially setting a record compared to even summer demand — typically the "peak" season for demand in Texas due to cooling loads. With such heavy projected demand, natural gas and electricity prices rose rapidly heading into the storm, settling at prices 50 times higher or more than normal.

As the storm hit, electric demand soared and many power plants suffered outages. Texas' grid operator, ERCOT, initiated load shedding to preserve the grid from complete collapse. Although these were called rolling outages, the normal response to tight grid conditions, the reality is that the forced generation outages were so severe that operators had shut off power for many customers for 24 hours or more. As critical infrastructure like hospitals is often in wealthier communities, it appears many poor and minority areas suffered a disproportionate share of the outages.

For much of the Texas power crisis, load shed was around 15-20 GW, roughly the average electricity demand for New England. Nationally, the storm led to a loss of power for more than 4.5 million customers, the vast majority of them in Texas.

As many households do not have sufficient insulation, millions of people have suffered near freezing, life-threatening indoor conditions. With many roads impassable and what few heating centers that existed presenting COVID-19 exposure risks, most were forced to wait it out. Cases of hypothermia and carbon monoxide poisoning rose rapidly with people using desperate methods to heat themselves. This was made considerably worse by impacts to the water system. As the water system relies on electricity to be delivered, it was severely impacted. This was further compounded by frozen and broken pipes.

Power plants in particular failed to perform at the level expected by grid planners. Both electric demand and forced outages greatly exceeded ERCOT's pre-winter resource assessment. Almost 30 GW of natural gas, coal, and nuclear generators (roughly half of what was expected to be online) were already on the outage or suffered from a forced outage. Natural gas is the primary electricity source in the state and was expected to provide as much as two-thirds of electric capacity in such conditions. As much as 40% of natural gas capacity was not available which made the Texas power crisis inevitable.

While the precise reasons are yet to be revealed, these outages are likely due to a mix of plant-level issues and gas pipeline delivery issues. The interdependence between the gas and power sectors has been clearly illuminated. Frozen oil and gas wells cut production and there may be insufficient pipeline capacity. In one of the oil and gas capitals of the world, power plants could not get natural gas to operate. Even one of the state's four nuclear reactors, usually most resilient to weather-related disruptions, suffered an outage due to a sensor issue. Meanwhile, some wind turbines suffered from icing, with renewable energy capacity — compared to grid planning criteria — either overperforming or underperforming depending on the day.

Energy system outcomes do not occur in a vacuum, and are shaped by policymaker and industry decisions over long periods. Although the weather conditions were extreme, the energy systems failures will lead to many discussions about grid planning.

Unlike other electricity markets, ERCOT has an "energy-only" market that does not feature capacity markets or other capacity mechanism — long the dream of pure market economists. Instead, the market relies on the potential for electricity price spikes to incentivize reliability. As a result, Texas has one of the lowest reserve margins in the country. It also is largely isolated from the other two, much larger, power systems in the US — to the east and west. This, too, was a political decision to avoid regulatory oversight.

The performance of many market participants indicates that model was insufficient. Even though the storm was particularly severe, it was not entirely unprecedented. Exactly ten years ago, Texas suffered rolling outages due to a winter storm. Most recommendations that came from that event appear to have been ignored. Compared to ERCOT, El Paso suffered similar weather conditions but maintained power due to winter planning post-2011.

During the Texas power crisis event, the human impacts have been exacerbated by a lack of communications by ERCOT and the state government. Compared to California's rolling outages last summer, communications from the grid operator have been limited and inconsistent. Most people in the state appeared unaware of the risk of outages and were caught unprepared.

Beyond electricity, other critical infrastructure has been impacted. With many frozen pipes bursting and others left on to prevent freezing, many areas are on the verge of water shortages. Water boiling advisories are in effect, though that is difficult for those without power. This poor communication has been exacerbated by many of the powerful politicians in the state either casting blame on renewables, or highlighting the importance of Texas' independence from federal regulatory oversight, rather than focusing on the associated public health crisis unfolding in the state.

Looking forward, these outages should serve as a wake-up call for all energy markets. Following the polar vortex of 2014, when forced outages almost caused rolling blackouts on the East Coast, national grids should have been prepared to handle gas-electric and electric-water coordination issues.

Grid reliability planning has overly focused on ensuring sufficient supply, primarily during summer conditions. Due to the cheapness and future ubiquity of solar and batteries, peak electric system demand during summer may no longer be the driving planning factor for most energy grids. Rather, managing peak energy system demand during winter may need to drive planning and investment — even in Texas. A focus, too, on demand will be key, from better insulation to demand side participation in energy markets, and even operations, is needed.

Although the primary energy systems cause of the blackouts is systems planning, there are undoubtedly implications for choice and a portfolio of energy sources. Weatherization is critical for all energy sources, and the U.S. should consider national or regional standards to avoid another Texas power crisis like event.

Natural gas, often considered a firm and dispatchable resource, has energy security limitations due to its just-in-time delivery. While renewables were not a major contributor to the lack of reliability, wind and solar appear ill-suited to serving large, infrequent cold-weather demand. Both are set to become dominant electricity sources as we decarbonize, but we must also consider and invest in the roles of other energy sources, including nuclear energy, carbon capture, enhanced geothermal systems, hydrogen, ammonia, and more. Transmission and energy storage certainly have critical roles to play, with broader interconnection and high voltage transmission corridors to build regional resilience.

While outage management planning may be anathema, there should be a better discussion about how to manage rolling blackouts to alleviate impacts on minority communities. More broadly, resilience needs to go beyond the electric sector to ensure that critical infrastructure like water and health services does not fail in a cascading manner, as it did during the Texas power crisis.