A future for fossil fuels as backup
As we ask what went wrong during February’s winter storms, we should also think about solutions for Texas going forward.
Statistics show Texas has invested heavily in green technology for energy production. According to the U.S. Energy Information Administration, renewable energy sources account for 20 percent of energy produced in the state. That analysis suggests that Texas leads the country in wind production and is the sixth-largest producer of solar energy.
Wind power, natural gas and coal plants all froze or went offline during those extreme conditions, according to the Texas Tribune. While some suggest that undue reliance on green energy caused energy blackouts during the storms, others claim that reliance on green energy may have prevented or mitigated such outages.
Despite these disagreements, one common element is the alleged failure of energy providers to sufficiently winterize their turbines — whether wind-, solar- or fossil fuel-powered. But can we fault them completely? Although Texans have experienced extreme weather periodically in winter, this recent event may arguably represent the extreme of these extremes. Critics argue that if Northern states can winterize their production turbines, Texas can, too.
Simple economics leads us to ask whether it is justifiable for energy producers to invest in costly winterizing equipment when it is needed only occasionally.
Climate pundits proclaim that extreme weather may be the norm in the future. Even if this premise is incorrect, from a society and business perspective, it seems that costs of energy production-related failures to businesses and society may be larger than the cost of winterizing the turbines. According to the New York Post, the economic cost of the storm is about $50 billion. In contrast, the Associated Press reported the cost of winterizing gas wells to be about $1.75 billion (2011 estimates) for Texas.
Going forward, there may be a viable alternate strategy. Investment in green technology in general is a good thing. Most people can agree that less pollution in the production process is a good thing for us and our planet — whether one does or does not believe that humans cause climate change. For the energy production industry, while costs of green technology-based production are decreasing over time, reliable production during extreme conditions is an issue. However, as Texas events illustrated, even fossil fuel turbines failed during extreme conditions.
A viable solution is to use green energy for normal production and maintain a reliable fossil fuel backup for extreme energy events.
Energy firms may also consider investing in winterizing equipment, and they may do so with proper financial incentives. Society can ill afford future failures of this magnitude, given the huge costs in life and business output. If retail customers need to bear an additional cost for energy production reliability, then so be it.
This does not mean that we should decrease competition in the energy sector in Texas. Competition can instigate energy firms to provide the best possible reliable and cost-effective service to retail and business customers.
We should collectively find the energy to prevent future recurrences of energy blackouts in Texas.
Prasad Padmanabhan is a professor of finance and the Myra Stafford Pryor Chair of Free Enterprise and a Sam Walton Fellow at the Greehey School of Business at St. Mary’s University.