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Posted by Lucas Davis28 Comments on The Most Obvious Way to Avoid Another Texas Blackout Uncategorized

The Most Obvious Way to Avoid Another Texas Blackout

Twelve months after the Texas power crisis and we’ve already forgotten the key lesson.

One year ago record-breaking cold weather was bearing down on Texas. Surging electricity demand and supply outages led to one of the worst blackouts in U.S. history, 4+ million households went without electricity for as long as a week, and several hundred people died. 

Much has been written in the year since about weatherizing power plants, fixing the natural gas market, updated standards and procedures, and other reforms. 

But I’ve been surprised to not to see more written about the most obvious solution. One of Texas’ big problems is that it’s electricity grid is not integrated with the rest of the United States. Fix that, and a whole lot of Texas’ energy problems go away, making electricity more reliable, cheaper, and greener.

Increased Reliability

Power outages impose enormous societal costs. For example, it wasn’t long after the blackouts began in Texas that people were dying of carbon monoxide poisoning from trying to keep warm using their barbecues and natural gas powered stoves. And as bad as it was, it could have been much worse. The Texas grid was close to suffering a catastrophic failure that could have left Texans in the dark for months.

If Texas had been able to import electricity from other states, this would have helped keep the lights on. Severe weather does not affect the entire country in the same way, so we can provide backup power for each other. We help you, you help us. 

Increased reliability is one of the big benefits from integrating markets. Unforeseen events happen – demand can spike unexpectedly, power plants outages can occur. Electricity reliability requires having enough redundancy in the system to be able to ride out those shocks.

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Integration is particularly important for electricity because storing electricity is so expensive. If it were easy and cheap to store electricity, electricity could be pulled in and out of storage in response to price changes and you would not see such large price fluctuations within hours or days. It would be much easier for a state like Texas to go it alone.

Gains From Trade

In addition to increased reliability, market integration creates economic value by connecting buyers and sellers. During February 2021, the average wholesale price of electricity in Texas was $1,485/MWh. Meanwhile, prices outside of Texas were *twenty times* (20x!) lower. During February 2021, the average wholesale price in MISO was $60/MWh, and the average price in PJM was $40/MWh.

Generators outside Texas would have been thrilled to sell electricity to Texas for even a fraction of the ERCOT price. This is a remarkable price difference, like being able to buy gasoline for $3/gallon, and then sell it for $900/gallon. 

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If Texas could import large quantities of electricity from other states, you would not have seen this huge price differential. This is how free trade works. When I have excess, I sell to you. When you have excess, you sell to me. We are both made better off. 

This is not just about extreme events. Yes, better integration is particularly valuable during the winter heating peaks and summer air conditioning peaks, but market integration creates economic value every hour of the day, every day of the year.

Yes, electricity transmission is expensive to build. I’m sure readers will also weigh in to explain the legal, technical, and political barriers which I’ve glossed over and further increase the cost of market integration. But previous studies find that the benefits exceed the costs. My colleague Jim Bushnell and coauthors find that a national grid could yield hundreds of billions of dollars in net benefits and NREL’s Interconnections Seam Study finds that the benefits would exceed the costs by a ratio of two to one.

Integrating Renewables

Not only does market integration make electricity more reliable and cheaper, but it also tends to make it more green.

Integrated markets are more efficient. That is, there is more production by generators with low marginal cost – and less production by generators with high marginal cost. Thus market integration is not inherently green or brown. In some cases, it can mean more generation by large coal plants with low marginal cost.

However, in most cases, integration tends to be good for the environment.   As my colleague Meredith Fowlie has written about, better market integration makes it easier to incorporate renewables into the grid.  After all, wind and solar generate electricity at near zero marginal cost, so they tend to benefit from great market access.

Wind and solar are intermittent and unpredictable, so having a larger effective market also helps to smooth out these fluctuations and, for example, make it less necessary to curtail renewables during periods of low net demand.

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Conclusion

Look, I get it. Texas’ energy “independence” has long been a source of pride for many Texans. As former governor Rick Perry put it, “Texans would be without electricity for longer than three days to keep the federal government out of their business.”  

But it is time to reassess the costs and benefits. Each year there are more renewables on the grid, both in and out of Texas, more people adopt electric heating and cooling, and extreme weather events become more common. Sometimes the most obvious solution is also the best. 

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Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Davis, Lucas. “The Most Obvious Way to Avoid Another Texas Blackout” Energy Institute Blog, UC Berkeley, January 31, 2022, https://energyathaas.wordpress.com/2022/01/31/the-most-obvious-way-to-avoid-another-texas-blackout/

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Lucas Davis View All

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.

28 thoughts on “The Most Obvious Way to Avoid Another Texas Blackout” Leave a comment ›

  1. I appreciate Eugene Preston sending the 1999 Texas Commission study of possible AC interconnections between ERCOT and surrounding control areas. I was unaware of this study and am happy to see that it confirms my column that I cited earlier, both in its legal/regulatory analysis as well as the value proposition of such interconnections.
    Starting with the legal/regulatory analysis, the study says: “If, however, the [Texas] Commission petitions for and obtains a FERC order requiring synchronous interconnection pursuant to FPA §210, the scope of the PUCT’s current jurisdiction will be preserved ….” (page ES-11). This is what my column said 22 years later!
    Although the outcome of such a PUCT petition at FERC cannot be known in advance, what does Texas have to lose from trying? If FERC said no it would share responsibility for the next disaster as well as for handicapping renewable energy development.
    And a few words about giving Texas “special treatment” by continuing longstanding state regulation. One-third of the utilities in the U.S. are outside RTOs and have little FERC oversight. And single-state RTOs are almost the same – what say did FERC have in the closures of Diablo Canyon and Indian Point? Zero.zero. I suggest we be pragmatic and pursue what’s best for all.
    Now let’s talk about the value proposition of AC interconnections as discussed in that 1999 report. Capital cost of the six strawmen interconnections was estimated at $600-650 million (page ES-9). Transfer capability was estimated at 1,500-2,500 MW (ES-18), so the capacity cost would be about $325/kw – cheap even in 1999 dollars. Reliability value was undeniable: “With synchronous interconnection ERCOT will be able to withstand some kinds of disturbances and outage contingencies better than if no AC inter-ties were installed.” (page ES-18).
    Annual production cost savings were projected at $10-250 million (page E-20).
    What did the report conclude overall? “The creation of additional electrical interconnection(s) between ERCOT and the
    SPP/SERC is of potentially enormous significance to the electric industry in Texas.” (page ES-22).
    Of course that was 22 years ago, before the vast renewable energy integration value would be apparent!
    Finally, please let me address the contention that in Winter Storm Uri such interconnections would have been of little value because SPP and MISO were themselves experiencing weather related shortages. If you look at the FERC staff presentation on the joint FERC-NERC-Regional Entity report on the event, https://www.ferc.gov/media/february-2021-cold-weather-grid-operations-preliminary-findings-and-recommendations-full, you will see that MISO and SPP had minimal load shed and for minimal hours. Up to 13,000 MWs flowed east-to-west to help out MISO and SPP. Thus, during virtually all of Winter Storm Uri some portion of that vast flow would have been available to ERCOT if AC interconnections had existed. Not only to reduce outages but to provide critical black start support.
    Cheap reliability, more efficient dispatch, vast renewable energy integration, what’s not to like? Like I said before, it must make too much sense.
    Best wishes,
    Steve Huntoon

    • Thanks Steve. Glad the link is useful. I had this thick book of work on my shelf everyone had forgotten about. Even my colleagues who worked on it had forgotten or tossed their copy. There is a great interest in interconnecting. The Southern Cross is an attempt to connect a 2 GW DC tie from ERCOT to Southern Company. Electrically it works fine. Financially it’s a challenge to finance since it would get its revenue from selling power back and forth between regions. So it could be very useful as an emergency tie, it has to be financed with energy sales, unless of course someone like the Federal Government or ERCOT provided some of the money needed to build the line. There is a history on our east DC tie and north DC tie based on attempts to make ties economic. The AC interconnections don’t work well because the regional transmission systems inside and outside ERCOT are just too weak to support us. AC ties would require rather massive reworking all the lines in ERCOT and SPP and MISO. I think an AC 765 kV loop in AEP style could be made to work where ERCOT has DC ties along the loop that would swing through ERCOT. But there is no team anywhere pushing that idea. Its just too massive an idea for ERCOT to consider on its own. We need AEP to step in and design us a 765 kV large scale plan where everyone benefits and it can make the VCE concepts actually workable and not that stick figure diagram they have in their current VCE reports.

  2. I got this in discussion with a former gas engineer in the UK on liquid backup for gas electrical generators.
    “A limited amount (few days) of oil fuel backup storage has been compulsory in UK for all gas turbine plants ‘forever’ (since the first in c.1980)……(UK) technical security standards (the ‘Grid Code’) are pretty good. Generally the UK gas grid is incredibly reliable overall (world’s best), but we too have gas curtailments to gas power plants in ‘extreme’ cold snaps because home heating and hospitals etc are seen as higher priority and the powerplants have liquid fuel backup (there is a whole sophisticated hierarchy for ‘disconnections’ since at least 1973).”
    So why doesn’t an oil state like Texas have this?
    Interestingly, the UC Berkeley co-generation plant has liquid fuel storage. The plant usually uses natural for a gas turbine followed by a steam turbine with waste steam going to campus. When I toured the facility about 10 years ago they assured me this was because when natural gas supplies were tight they were under contract to switch to on site liquid backup fuel. Since it appears much of the Texas problems would have been solved with this system. Anyone know?
    If liquid carbon neutral fuel can every be manufactured economically, then storing and running existing gas turbine plants on this fuel for peaking or when wind and solar are not generating might be an economical way of smoothing a renewable energy grid supply.
    For those at Berkeley, it was possible 10 years ago to call the steam plant and schedule a tour of the co-generation steam plant. Well worth while to those interested who are in the Berkeley area.

    • When we deregulated the power supply planners were put out to pasture so to speak. I would ask a question about reliability at a utility planning meeting during my last days with Austin and I was told, Gene, let the market take care of it. I guess the new ERCOT group not being responsible for the reliability of the supply just didn’t look into the possibility of needing oil storage. Now we know we mess up big time. However this need to have oil at existing gas plants has still not been implemented here. I guess after it happens a few more times we will finally learn out lesson. Good for the UK designing in reliability.

      • There’s a countervailing belief among some economists who believe that the market should be priced entirely on short run markets that price spikes created by supply shortfalls are a necessity so as to incentivize the right amount of generation investment without any central planning. That’s the presumption behind ERCOT’s peak pricing model. Outages are a necessity in that view. Instituting reliability requirements blunts that price signal which makes FERC’s belief that hourly markets can lead the way a false vision.

        • The prices here drove customers into bankruptcy. We are in a 1929 style market failure in slow motion. The litigations here will go on for years. Everyone is a loser, even, the gas companies and generators and also ERCOT has debts it cannot pay. It’s all because the situation was life and death and if the power went off then you might die and if the power stayed on you might be bankrupted. The free market was cruel to everyone here. There were not real winners except a few energy providers. But the insurance companies are going after those who made high profits. The litigations are surely not going to help with future system investments.

          • Agree, Gene. And similarities to the 1929 market failure are not coincidental. Early in his first term, FDR recognized the public was vulnerable to exploitation by utility monopolies, and together with Senators Sam Rayburn and Burton Wheeler crafted the Public Utility Holding Company Act of 1935 (PUHCA). It was the genesis of the American regulated utility model, one that became a model for the world. PUHCA:
            • Forbade utilities from making campaign donations
            • Limited lobbying by utilities
            • Forbade utilities from investing in other businesses
            • Prohibited the same holding company from owning both gas and electricity subsidiaries
            • Forbade affiliate transactions within vertically-integrated energy holding companies
            • Mandated annual utility audits by the Securities and Exchange Commission
            If you’re wondering why electricity rates are increasing faster today than they have in the last 70 years, it’s because PUHCA was repealed in 2005 – and now, Americans are learning those 1920’s-era lessons all over again.
            “The free market was cruel to everyone here.”
            Not really – the problem is there is no free market in retail electricity. Never was, never will be. And when you de-regulate monopolies that provide an essential public service, cruelty becomes the name of the game.

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  4. There is one kind of high capacity tie line design I think ERCOT should look at and it could be very beneficial to black start for ERCOT as well as fix some internal problems we are having. Suppose AEP had built their 765 kV line in Ok running northeast to tie in to their 756 kV backbone and then ERCOT extends this 765 kV line or lines down into the Texas panhandle and then loop the 765 kV across northern Texas and into Louisiana into MISO south and from there it loops back north tieing MISO north and south together solidly and then connects back into TVA. What ERCOT could so is establish DC ties along this line running through north Texas and we could exchange power with other states but more importantly we could bring an extra 4 GW of wind power down into north Texas with a DC tie in the DFW area. This would make a lot of sense but I cannot seem to get anyone interested here. Maybe this is because we are just not thinking big enough here in Texas if you can believe that ha ha.

  5. There is one kind of high capacity tie line design I think ERCOT should look at and it could be very beneficial to black start for ERCOT as well as fix some internal problems we are having. Suppose AEP had built their 765 kV line in Ok running northeast to tie in to their 756 kV backbone and then ERCOT extends this 765 kV line or lines down into the Texas panhandle and then loop the 765 kV across northern Texas and into Louisiana into MISO south and from there it loops back north tieing MISO north and south together solidly and then connects back into TVA. What ERCOT could so is establish DC ties along this line running through north Texas and we could exchange power with other states but more importantly we could bring an extra 4 GW of wind power down into north Texas with a DC tie in the DFW area. This would make a lot of sense but I cannot seem to get anyone interested here. Maybe this is because we are just not thinking big enough here in Texas if you can believe that ha ha.

  7. The proposal is an illusion. It’s not without some merit, but it doesn’t solve the real problem … Too much unreliable wind and solar and not enough baseload power. Wind and solar cannot be relied on for reserve margins. I refer to my article Texas Remains in Peril at https://bit.ly/3AD06Vd If your read that article you will see why ERCOT is not protecting the people of Texas. It claims a reserve margin of 41.2% for a normal winter. But what’s needed are reserves that will be available when wind and solar don’t generate electricity.
    AS for integrating the grid? The states to the North and East of Texas nearly had the same problem as did Teaxs in the winter of 2021. They didn’t because they had just barely enough coal-fired power available. If they had been relying on wind and solar they too would have had extensive blackouts. My book, The Looming Energy Crisis, Are Blackouts Inevitable explains the problem with all RTO/ISOs.
    Keep installing wind amd solar and two things will happen: The price of electricity will increase and there will be devastating blackouts.

  8. This letter to editors of local papers in Texas may be relevant to this topic:

    In my 1998 retirement from Austin Energy after working 28 years in planning I’m still doing grid studies at home. The mistake ERCOT made deregulating the grid in 1999 was not requiring new gas plants to also install oil backup storage tanks like were at Holly and Decker Plants in Austin. Gas curtailments have been with us since the 1970s and continue today. This is the nature of the gas providers. Their supply cannot be made 100% reliable. But we have a worse problem today. Wind and solar are preventing an expansion of new gas plant capacity. This exposes us to a continuation of rolling power shortages which my studies show will become more frequent in a couple of years. Under the current rules ERCOT cannot fix this problem. Another problem is the rules do not address climate change. see https://egpreston.com

  9. Lucas,
    I do not dispute that there are gains of trade, but bear in mind that there were involuntary curtailments in the regions around ERCOT during the February 2021 event and that the existing tie capacity to the Eastern Interconnection was not at capacity during much of the event: that is, additional ties just spanning the border between ERCOT and the Eastern Interconnection would not have increased the amount of power that could be brought in during those times. The curtailment was 20GW at times and one might have needed that order of additional capacity with a “reach” on the order of hundreds of miles into the Eastern and Western Interconnections to access available generation capacity. As you argue, this would have advantages in terms of renewable integration and might be cost-effective overall; however, I think you underplay the costs and political difficulties. By political difficulties, I am not just meaning in Texas: try building 10GW of transmission capacity through any state in the union besides Texas and see how easy it is.

    Best Regards,
    Ross Baldick

    • Giving Texas a pass on the FPA is just the kind of special treatment that the state is pushing for on other fronts? Why not give the CAISO a pass on governance, or the states in PJM with renewable set asides a pass? This is a non starter specifically because it is treating a single state as having special status.

      And Texas won’t concede that it needs outside interconnection because it believes that it somehow has made it on its own. Texans confuse the fact that their economic success is built on huge oil reserves with being supposedly self made. It’s like the joke that the guy born on third base thinks he hit a triple.

      • ERCOT has no AC ties with other states therefore the transmission does not fall under interstate commerce. It’s been fiercely defended by Texas since the beginning of time. California has interstate ties thus falls under the fed regs. I’m not a lawyer but this is what I have heard.

          • A key statement in the article is
            “If Texas could import large quantities of electricity from other states”
            Problem is that the other states don’t have anything to send ERCOT because everyone is short on capacity at the same time in a Uri type storm.

          • I was referring to the discussion about FERC jurisdiction in that article and your response that it’s defined by the type of physical interconnection. Huntoon says otherwise.

          • If FERC did exercise all its discretion it might result in the US government suing the Texas legislature. It might not be an entanglement FERC wants to get into. Ive had this opinion privately expressed to me. NERC has been issuing warnings but ERCOT says under the rules we operate by here they cannot set standards of reliability. All ERCOT can do is try to direct the market through price incentives. It’s hard to believe there is no enforced standard for power supply reliability here. The US government should set minimum standards for grid reliability or be fined. That would be the best path forward from here. However if it does do this it could harm the development of renewables.

      • We studied an AC interconnection and reported it to the legislature and PUC in 2000. I ran many of the load flow cases. We found that six 345 kV lines would be a minimum needed to support loss of generation in ERCOT, such as loss of a nuclear plant. The six ties would not pay for themselves. In hindsight we can see that they would not have supported ERCOTs generation loss during Uri. What happens is that one of the tie lines overloads and opens up and then others open up and boom, all the ties open and ERCOT goes down in a flash rather than gradually as it did. That’s how a cascading breakup happens. Here is a copy of the exec summary I scanned from a paper copy on my shelf.

        Click to access ERCOT_AC_Interconnection_Study.pdf