The Texas Freeze and Rolling Blackouts – The Importance of a Capacity Market

By Carl Laverghetta, Senior Policy Advisor

The great Texas freeze over the last four days was unprecedented and it created a cascading effect on the ability of power generators in the Lone Star State to provide much needed electricity in abnormally cold weather. The Weather Prediction Center located in Maryland noted that the area affected by the winter storm warnings is larger than Alaska. According to the National Weather Service, over three days, the central United States was the most unusually cold region on the planet, with temperatures reaching 50℉ below average in some areas. Interestingly, the planet as a whole is still unusually mild, and 2020 was on par with the previous record for the warmest year on record according to the National Weather Service. Equipment literally froze and stopped working in the single digit temperatures. 

As the jetstream smothered the southwest with unusually cold temperatures, the Electricity Reliability Council of Texas (ERCOT), representing 26 million customers, 90% of the state’s electricity load, and 680 generation units reported diminishing power reserves and asked transmission providers to turn off large industrial users that had previously agreed to shut down. However, as the long weekend unfolded, the overall situation deteriorated quickly, requiring rotation outages that have lasted much longer than expected. With demand for electricity reaching a record 69,000 MW, the ERCOT grid collapsed.

In 1999, ERCOT established Texas’ deregulated energy market. Texas would create an “energy-only” market without a forward capacity market. In doing so, ERCOT became the only deregulated energy market in the U.S. that is not overseen by the Federal Energy Regulatory 

Commission. Turmoil over this storm’s impact has prompted Texas’s Governor to call for an investigation into ERCOT, and the causes are many, including the lack of winterization of the electricity infrastructure throughout the state.

Between two to three million electricity customers in Houston, Galveston, San Antonio, Texas, and Northern Mexico were affected. Over the weekend, 34 million megawatts (MW) were subtracted from the Texas grid. Texas, which has the most on-land and offshore wind generation (23% or 12,000 MW of the state’s energy generation), saw a significant portion  of those turbines simply freeze up. Even the state’s bountiful natural gas production (55.5 gigawatts of gas generation) suffered severe losses of capacity despite reporting that they had winterization safeguards in place. Texas’ plentiful PV solar output (2.3 gigawatts of solar) was affected, as many of the solar panels were coated with ice. Some natural gas pipelines became clogged with ice, shutting down gas production completely. Even nuclear generation output has dropped due to complications from the extreme cold.

In November of 2020, ERCOT had actually warned about electricity generation plants and their equipment not being properly winterized. Texas law does not require such winterization. During this winter blast the generation infrastructure limped along on underinvestment and neglect until it finally broke under unpredictable circumstances. 

With the bitter cold continuing, generation reserves diminished. ERCOT initiated rotating outages that lasted hours for many Texans. Rotating outages become necessary when the state’s electricity demand outpaces available supply in real time or are unavoidable. Oncor, Texas’ largest distributor of power, embarked on rotating outages. The outages affected Midland, TX in the west and then moved east to Abilene, Ft. Worth/Dallas, San Antonio, Houston, and parts of Galveston.

Of course, prices were impacted. The average spot price for power across the Texas grid hit the state’s $9,000 per megawatt-hour price cap shortly after 9:30 a.m. Sunday. Wholesale natural gas prices shot up as much as 4,000% according to Bloomberg Energy. Liquified Natural Gas  (LNG) exports from the U.S. also plummeted after the freeze shut ports and wells, and oil production also took a hit, with Permian oil shale production plunging by as much as one million barrels a day. West Texas Intermediate futures rose by as much as 2.5%, above $60 a barrel for the first time in more than a year.

Over that time span, Texas has been under a microscope by energy experts. Many experts were skeptical when ERCOT established the “energy only” design, commenting that there was a danger of a “perfect storm” impacting the overall energy landscape that lacked a forward-procured capacity and could be fatal to grid stability. The “perfect storm” arrived.