Experts not buying Buffett’s $8B power plan
Warren Buffett’s $8.3 billion proposal to build more Texas power plants fails to address the cause of February’s deadly power crisis, analysts say, and guarantees a hefty profit for his energy business that would be paid by consumers.
The proposal that Berkshire Hathaway Energy is shopping around to Texas leaders and lawmakers would add natural gaspowered generating capacity for use during emergencies and provide the Omaha billionaire’s company a 9.3 percent return on investment, paid by electricity customers.
But Texas had enough gas-fired power plants, said Jim Krane, an energy fellow at Rice’s Baker Institute for Public Policy. Half of them, however, weren’t functioning because of the unprecedented cold that swept the state.
“It’s like trying to fix a broken window by putting in a bigger furnace,” Krane said. “Let’s fix the broken window. The furnace is fine. It’s the wrong solution for the problem.”
Berkshire’s Texas Emergency Power Reserve would include 10 new natural gas power plants that would add 10,000 megawatts of generating capacity — enough to power some 2 million Texas homes — to the state grid, according to Chris Brown, CEO of Berkshire Hathaway Energy. The plants would be operational by November 2023.
The gas-fired plants, which could withstand freezing temperatures and have seven days of natural gas storage on site, would operate during an emergency and as directed by the Electric Reliability
Council of state’s grid Brown said.
The plan comes a month after more than 100 people died during the power crisis in which half of the state’s power generation capacity was knocked offline during days of subfreezing temperatures.
Berkshire Hathaway Energy representatives have pitched the idea to lawmakers and state leaders including Gov. Greg Abbott and Lt. Gov. Dan Patrick during meetings in Austin over recent weeks, the company said. It also has hired eight lobbyists in Austin at a cost of more than $300,000, according to records filed with the Texas Ethics Commission.
The additional capacity from the proposed plants would create a more robust grid that in a crisis would provide enough power to ensure that no customer would be without
Texas, the manager, electricity for more than three hours, according to Berkshire’s plans.
The state’s power generators oppose the plan.
“The $8.3 billion in costs to consumers is absolutely raising the cost for Texas consumers but it isn’t raising the reliability for them,” said Michele Richmond, executive director of Texas Competitive Power Advocates, a trade association representing power generators and wholesale electricity marketers.
During the freeze, the state’s supply of natural gas to power plants was hampered by frozen lines that weren’t built to withstand the near historic low temperatures and the failure of electric pumps that didn’t have power.
“People couldn’t get natural gas to their plants and the plants sat idle,” said Chris Moser, executive vice president of operations at NRG Energy, which owns retail power brands such Reliant Energy, Direct Energy and Cirro Energy. Even when ERCOT raised wholesale electricity prices to the state maximum of $9,000 per megawatt hour to lure power suppliers into the market, the extra power couldn’t be delivered.
Deregulation rules
Unlike other deregulated power markets across the nation that pay generators to keep plants ready to meet peak demand — whether they operate or not — Texas relies on price to encourage companies to invest in building, maintaining and upgrading power plants.
Berkshire Hathaway’s plants would only offer backup power, Brown said, and not interfere with the Texas market. “It is effectively blackout insurance for all consumers,” he said.
The move would create a one-company power reserve paid to produce energy in the future when it’s needed, experts said. “Why would anybody put their own investment and development money into our existing plants or into building new plants when the state of Texas just paid somebody to build?” said Richmond. “That will reduce investor confidence in the market. And that is not the signal that we want to send.”
Squeezed by low electricity prices, tight margins and competition from cheap wind power, merchant power companies such as NRG Energy, Calpine and Vistra Energy have been reluctant to invest in new power plants or upgrade existing ones.
Lenders and investors have agreed. A major new power plant — excluding wind and solar installations — has not been built in Texas since 2017, when Chicago-based Exelon completed two 1,100-megawatt gas-fired power generators, according to ERCOT.
If Texas power companies were guaranteed a 9.3 percent of return, plenty more would be willing to build new plants, NRG’S Moser said.
“I do not think this is the right route for Texas. But there’s certainly other companies that would take a keen interest if they’re going to be passing out guaranteed contracts,” Moser said.
More opposition?
Further opposition to the Berkshire plan could come from those who support President Joe Biden’s effort to reduce climate change by putting the U.S. on a path to net-zero greenhouse gas emissions by 2050.
Biden’s energy plan calls for increasing renewable energy sources such as solar and wind, and reducing the use of fossil fuels such as natural gas. During the past 13 years, the generation mix on Texas’ power grid has shifted to natural gas and renewables, with wind making the greatest gains. Wind energy generates about 20 percent of the state’s electricity, up from just 2 percent in 2008, while natural gas has remained nearly steady at 47 percent, according to ERCOT.
“Adding more fossil fuel capacity to the grid is not going to address the problem we faced in February,” Rice’s Krane said. “It’s going to make the lift even heavier when Texas finally gets around to addressing climate change.”