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Local economist proposes fix to problems that nearly collapsed Texas electric grid

A Central Texas economist is proposing a fix to the problems that nearly pushed the state’s...
A Central Texas economist is proposing a fix to the problems that nearly pushed the state’s electric grid to the point of collapse during the historic February freeze.(KCRG)
Published: Mar. 15, 2021 at 2:38 PM CDT
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WACO, Texas (KWTX) - A Central Texas economist is proposing a fix to the problems that nearly pushed the state’s electric grid to the point of collapse during the historic February freeze.

“Now that things are getting closer to normal after the extreme weather and blackouts, one thing that has emerged is the need for a base level of generation capacity available at all times,” said Dr. M. Ray Perryman, principal at Waco’s Perryman Group.

“The amount could be set to provide grid stability during periods of extremely high demand, with adequate winterization to ensure availability,” Perryman said.

Perryman pointed out that in the Texas market, power generators only earn revenue when they sell power, as opposed to traditional regulation under which they are also paid based on maintaining available capacity.

“Once wind turbines are installed, operating them is essentially free.

“At times, wind farms can generate sufficient electricity to send prices plummeting, or even negative,” Perryman noted.

“For those into the esoteric, prices in a competitive market are determined by the marginal cost of the last unit; on a nice spring day, wind often supplies all that we need.”

Perryman said he recalled saying that Texas should consider creating what he called a “capacity market” and said he believes now would be a good time to revisit that idea.

“Legislation or a regulatory authority could set the level of base capacity, and firms could be compensated for keeping it available,” Perryman said.

“These costs would be passed along to consumers, likely in the form of higher electricity rates, and better winterizing could also be required, which is also not free.

“You can think of it much like an insurance policy. You pay for it, hope you never need it, but are glad it’s there when you do,” Perryman said.

Past weather events triggered rolling blackouts, and best practices for winterization were developed, however, there is no effective enforcement mechanism and, hence, little incentive for generators to incur the additional costs, Perryman said.

“It would be useful to examine the adequacy of mechanisms for assuring compliance,” he pointed out.

Moreover, generators in Texas often purchase interruptible natural gas supplies, meaning that they get a reduced price, but may be interrupted when supply is scarce, a practice which reduces costs in normal times, but creates problems during severe storms that winterization alone will not solve.

“It’d be like flying standby to your daughter’s wedding on a holiday weekend.”

“Another issue that arose was that the compressors that facilitate the natural gas supply are generally powered by electricity, yet they were not prioritized.

“Thus, the lack of electricity hampered the ability to generate more. That should be an easy fix,” Perryman pointed out.

“The recent, near-catastrophic failures illustrate a need for changes,” he said.

“The rational approach involves ensuring adequacy of generation fueled by diverse means. With the right incentives, the market approach should continue to provide its many benefits while assuring that the lights (and heat) stay on.”

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