Texas did just fine with­out coal plants

Houston Chronicle Sunday - - BUSINESS - CHRIS TOM­LIN­SON

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.

Kin Man Hui / Staff pho­tog­ra­pher

ERCOT, or the Elec­tric Re­li­a­bil­ity Coun­cil of Texas, mon­i­tors the state’s grid of transmission lines.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.