Texas did just fine without coal plants
The Texas electricity market proved once again why it’s a leading innovator, and power customers around the world should pay attention.
Six months ago, critics predicted that Texans would suffer soaring electricity prices and rolling blackouts in what they predicted would be a cruel summer. Generators had shut down expensive coal-fired power plants, raising questions about whether supply could meet demand.
The grid operated by the Electric Reliability Council of Texas relied too much on wind energy, the pundits said. Making matters worse, ERCOT only paid generators for the electricity it bought, providing few incentives to keep spare capacity.
Texans simply pay too little for electricity, these critics said, due to federal tax incentives that encourage wind farms. The Texas grid was a house of cards that would come tumbling down if the summer of 2018 was hotter than average, they warned.
The summer of 2018 was indeed one of the hottest on record. ERCOT, which meets 90 percent of the state’s electricity needs, set a record for demand at 73.2 gigawatts. But the lights stayed on, and prices remained reasonable.
Texas’s lightly regulated market, heavily reliant on renewable energy, worked as planned. The sky did not fall.
ERCOT is unique and widely admired by the global electric power industry. In 1998, Texas lawmakers did away with the traditional model of the government setting electricity rates and guaranteeing generators a profit margin. Lawmakers decided to make generators compete to see who could offer the lowestpriced electricity.
ERCOT is responsible for operating the market and overseeing distribution. When demand goes
“Both high temperatures and low wind in unison are needed to produce exciting price prints.” Morningstar analysts
up and spare capacity shrinks, ERCOT pays higher prices to encourage more generation. Wholesale electricity in Texas averaged $28.25 a megawatt-hour in 2017 — among the lowest in the nation — but can legally go as high as $9,000.
Generators make their money when demand peaks in the summer and winter. Other markets encourage competition, but most pay generators to have spare capacity. Texas also has the most installed wind generation, which generates federal tax credits and suppresses prices.
“Both high temperatures and low wind in unison are needed to produce exciting price prints,” analysts at the financial advisory firm Morningstar concluded. “If those two factors don’t combine, then ERCOT has enough generation, especially wind, to supply even record demand.”
Lower power prices, though, are tough on older coal-fired power plants built when politicians guaranteed profits.
Vistra Energy Corp. cited low prices when it shut down three coal plants last winter. The company took 4.1 gigawatts of generation off the ERCOT grid, enough capacity to power 2.8 million homes.
Vistra’s decision meant ERCOT generators would need to operate at 89 percent of capacity to meet Texas’ forecasted electricity needs. ERCOT prefers 14 percent reserves in case of an emergency. The slim reserve margin made traders nervous back in May, sending futures prices skyrocketing to $252 a megawatt-hour.
In July, a string of hotterthan-average days set 14 of the top 15 hourly demand records in ERCOT’s history. Prices exceeded $300 a megawatt-hour during some 15-minute intervals, but average prices settled well below what traders had anticipated. Electricity bills were typical for a Texas summer.
“Ten-times average prices is indicative that they were reaching constraints … but they weathered this very nicely,” said Ed Hirs, an electricity markets expert at the University of Houston. “The cool thing is that the engineers at ERCOT are able to manage the fluctuating input of renewables and dial up and dial down the very flexible gas generation and keep everything working.”
ERCOT proved grids can shut down uneconomical coal plants, rely on renewable energy and still provide reliability and reasonable prices.
Secretary of Energy Rick Perry should pay particular attention to the system that he helped deploy when he was governor. Perry claims that America’s electric grids cannot rely on natural gas and renewable sources. He wants to force consumers to pay $3 billion in subsidies to keep open uneconomical coal and nuclear power plants.
ERCOT’s experience proves that Perry’s proposal is nothing more than a handout to President Donald Trump’s supporters who own failing power plants.
ERCOT is leading the world in competitive markets and renewable energy. More coal plants are expected to close this winter, and ERCOT is adding more solar power than ever before.
Consumers will also likely set a record for demand next summer. I expect ERCOT will again prove that the future of electricity is more innovation, not less.