Rapid response: SPP/ERCOT winter freeze energy crisis

The winter storm that swept the southern and southwestern United States and parts of Mexico has left millions without access to electricity, heat, and water in the midst of a pandemic. Nearly all energy sources in the mix—from fossil fuels to wind turbines to nuclear power plants—have taken a hit in the last few days. Although rolling blackouts imposed by the Electricity Reliability Council of Texas (ERCOT) and the Southwest Power Pool (SPP) grid operator have tried to restore stability to the grid, the blackouts have had dire consequences for residents who are facing the prospect of yet another day without power. The grid operators’ response has raised urgent questions about crisis management and grid resilience. Atlantic Council Global Energy Center staff and nonresident senior fellows share their thoughts on the SPP/ERCOT winter freeze energy crisis and the way forward in this rapid response piece.

Jennifer Gordon is a Senior Fellow and the Managing Editor at the Atlantic Council Global Energy Center.

Randy Bell

An unreliable power system puts the energy transition at risk. Electrification plays a key role in the energy transition, as it is—comparatively—an easy sector to abate. Produce clean power, the thinking goes, electrify as much as possible, and we can cut out a large chunk of greenhouse gas emissions. But if the grid is not reliable and resilient—as suggested by the current power crisis across the middle of the country and by the rolling blackouts in California last year—one wonders how many people will actually choose electric vehicles, electric heat, and electric cooking. A resilient and reliable grid is possible, even with significant penetration of renewables, and it is worth noting that the current power crisis is caused by a failure of both renewable and hydrocarbon resources. The Biden-Harris administration needs to ensure that power system resilience is a priority, for both the safety of the American people and for the success of the energy transition.

Randy Bell is the Director of the Global Energy Center and the Richard Morningstar Chair for Global Energy Security at the Atlantic Council.

Reed Blakemore

The crisis in Texas and the broader US Southwest is an unfortunate case of one event hitting multiple points of weakness at the same time and overwhelming the power system entirely. Texas’ electrical grid is designed to handle high demand load during the hot summer months when air conditioning is the main source of demand, and this cold weather-driven demand spike caught the system during seasonal maintenance. Meanwhile, even though frozen wind turbines are grabbing headlines, coal, nuclear, and natural gas output (all of which supply more input for the grid in the winter than wind or solar) are also underperforming due to the severity of the freeze, making the current crisis less an issue of one energy source’s reliability over another. As a result, whether this event is a one-off or a symptom of continued extreme weather patterns occurring as a result of climate change, the lesson here is one similar to what California experienced during last year’s wildfires: regardless of energy source, electrification of the energy system must take place in tandem with grid modernization. This includes effective management of a mix of energy inputs into the grid as well resilience planning so that transmission and storage can absorb unexpected spikes in demand. Debating which energy source is at fault in this case is a distraction.  

Reed Blakemore is the Deputy Director at the Atlantic Council Global Energy Center.

Maria Castillo

ERCOT has started conducting rolling blackouts as of Monday morning to conserve the scarce amount of electricity that is currently available in Texas, leaving four million residents without electricity due to a breakdown of the grid that has resulted in at least 34 gigawatts of capacity loss. Although a necessary mechanism to preserve power for critical infrastructure such as hospitals, fire stations, and water and wastewater treatment facilities, rolling blackouts have the potential to create adverse health and safety effects for local communities, especially the most vulnerable. According to a study published in the Journal of Urban Health, power outages generate tangible health impacts, especially for elderly, low-income, and unprepared community members. This is especially troubling given that these same elderly and low-income communities have been hardest hit by the COVID-19 pandemic in Texas; a report by the Houston Chronicle published last year found that seven out of the ten zip codes in Houston with the highest number of COVID-19 cases were low-income Black and Latino communities, and similar trends have been found in other major Texas cities. Reports have already surfaced, including in the New York Times, alleging these same vulnerable communities in Texas were the first to lose their power on Monday and risk being among the last to be reconnected. In the Rio Grande Valley, the poorest region in Texas located along the US-Mexico border, which is over 95 percent Latino, customers were told they would experience blackouts that would last forty-five minutes to an hour, but many customers have not had power for over forty-eight hours. As government officials such as Governor Abbott and Senator Ted Cruz urge ERCOT and energy utilities to restore power quickly and reliably across the state, they must work to ensure this restoration reaches vulnerable, low-income, and marginalized Texas communities as soon as possible.

Maria Castillo is a Spring 2021 Intern with the Atlantic Council Global Energy Center.

Ben Hertz-Shargel

The blackouts imposed across Texas are a catastrophe, and Governor Abbott is right to declare an investigation into ERCOT and its handling of the winter storm event. However, careful analysis must be conducted before conclusions are drawn, such as labeling the blackouts a failure of ERCOT’s energy-only market model. An estimated 34 gigawatts (GW) of generation were forced offline by the cold on Sunday evening, equal to nearly half of the historic winter peak demand seen earlier that day. A majority—likely a significant majority—of that capacity was thermal, revealing yet again the susceptibility of the thermal fleet to extreme weather. We have seen this before in the two recent polar vortex events that hit the Northeast in 2014 and 2019, which froze coal piles and caused mechanical failures, as well as in California’s heat storm this past year. Nevertheless, serious questions must be asked as to why ERCOT shed as much load as it did beginning on Sunday night—risking residents’ lives—in order to confirm that the load shed was the minimum required for grid stability. Additionally, investigation is required into why real-time electricity prices fell below their cap of $9,000 per megawatt-hour (MWh) while load was actively being shed. This cap reflects the scarcity value of electricity to customers, and it is an essential element of ERCOT’s energy-only market model.

Ben Hertz-Shargel is Head of Data Science and Demand Management at Rhythm and a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

Robert F. Ichord, Jr.

It is now clear that the Texas Arctic freeze this February had major impacts on all aspects of the ERCOT and SPP electrical systems—generation, transmission and distribution—causing extensive outages, fuel supply problems, and price spikes in the market. In generation, ERCOT and SPP systems depend on gas, coal, and nuclear for system stability, and all of these sources faced difficulties given the extremely low temperatures—for which the energy infrastructure in Texas and other southern states was unprepared—especially natural gas in ERCOT, which accounted for about 40 percent of total generation in 2020. Difficulties with wind turbines were a factor but not as great as initially reported, and although wind turbines can be winterized, the turbines in Texas were not. Both ERCOT and SPP should learn from this winter power crisis and move quickly to carefully assess the reliability issues with each of the major electricity sources and the needs for investment in the upgrading, winterization, and expansion of generation, transmission, and distribution systems.

Robert F. Ichord, Jr. is a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

Margaret Jackson

Texas, a state that suffered in the latter half of 2020 from extreme heat and a record-breaking hurricane season, is facing another extreme weather event this winter, this time with freezing temperatures. The prolonged power outages last summer along the Gulf Coast and over the last few days this February demonstrate the vulnerabilities of the electrical system and highlight current limitations in providing consistent and reliable power to citizens. Climate change will continue to cause extreme temperature changes and weather events with more frequency and severity. Utilities, system managers, and policymakers must work more closely together to build an energy system with improved resilience and flexibility to respond to extreme weather events.

Margaret Jackson is the Deputy Director for Climate and Advanced Energy at the Atlantic Council Global Energy Center.

Olga Khakova

Preventing future blackouts caused by extreme, historic weather events—which are exacerbated by climate change—will require solutions that engage stakeholders at every level of the energy system. Forging these resilience solutions must start with energy efficiency measures to reduce overall energy demand and alleviate pressure on energy systems, especially when generation capacity is constrained. Moreover, building efficiency measures—such as insulation—affords additional benefits during extreme weather events by protecting building occupants from severe cold or heat.

The US Department of Energy (DOE), the Federal Energy Regulatory Commission (FERC), public utilities commissions, utilities, the private sector, and energy consumers all have a role to play in reducing waste in energy generation, transmission, and consumption. FERC’s Order 2222—which enables distributed energy resources including demand response and energy efficiency programs, to participate in wholesale markets—is a step in the right direction. Additionally, President Biden is aiming to reverse the Trump administration’s efficiency rollbacks and is well-positioned to enable the DOE to set stronger efficiency standards. However, much more can be done to value energy efficiency as a resource and to send the right market signals at federal and state levels as well as through utility-led initiatives and the expansion of financing mechanisms, such as Property Assessed Clean Energy (PACE) financing. According to the American Council for an Energy Efficient Economy, Texas is 29th on the national efficiency rating. With greater focus on energy efficiency investments, Texas—and other states across the nation—have a timely opportunity to address and recover quickly from extreme weather events and other energy security threats.

Olga Khakova is the Associate Director for European Energy Security at the Atlantic Council Global Energy Center.

Julia Pyper

Forced blackouts in Texas and other parts of the United States due to extreme cold reveal a disconcerting lack of preparedness on behalf of grid operators and other power sector decision makers. While all generation types have been affected by frigid temperatures and winter weather, ERCOT data show that thermal power plants—specifically natural gas, coal, and nuclear plants, which provide the vast majority of power in the region during winter—were the primary cause of the outages. Around 40 percent of capacity from thermal power plants in the Texas system operator’s territory went offline amid the cold snap. The poor performance of these thermal power plants and fuel supplies in freezing conditions is cause for concern. 

More than pointing blame at any particular generating resource, however, this emergency situation should prompt a deeper rethinking of how the US power system operates. Grid resilience, market structure, emergency planning, and other factors—in addition to the performance of various generation types—should be considered by energy stakeholders, especially as the impacts of climate change intensify. A growing body of research finds that extreme weather events are linked to global warming. In this case, there is evidence that cold air from the Arctic was brought south by a weakening jet stream. The nation’s ability to avoid deadly power cuts in the future requires a reexamination of grid operator expectations and a comprehensive plan for a smarter, more resilient energy system.

Julia Pyper is Vice President of Communications and Policy at Loanpal and a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

John Soughan

In many ways, this week’s power outages in Texas are the result of a black swan event, but these types of events with widespread grid impacts are becoming increasingly common in the United States amid a new climate reality, and they require a holistic approach to grid resilience all the way from power production to end users at the plug. For example, many property insurance and business interruption insurance policies do not cover damages caused by utility outages, or they have waiting periods before interruption coverage kicks in. These are factors that delay economic recovery from grid events and hamper grid resilience. In the past decade, other catastrophic events such as the 2020 West Coast wildfires or Hurricane Sandy in 2012 that required controlled power outages have shown that physical grid resilience only goes so far when protecting individuals and businesses. Without policymakers and power providers accounting for downstream issues like insurance when building comprehensive resilience solutions to meet the climate reality, grid issues like this will continue to wreak havoc on beleaguered local economies. The power outages in one of the most energy-abundant regions of the world highlight that grid resilience goes far beyond the energy and utilities sectors.

John Soughan is a Program Assistant at the Atlantic Council Global Energy Center.

E.W. Stetson III

The stability of the Texas power grid has perhaps never been more challenged as it has in the past forty-eight hours. Rolling blackouts or complete loss of power have severely stressed livelihoods during an already stressful time. What lessons will power providers take away from this extreme situation? Let’s dive in deeper.

The details of the current failure of Texas’ power system in the middle of record-breaking low temperatures and snow, are stunning. Forty percent of the systems installed capacity—or 34 megawatts (MW)—were forced out of service and unable to provide electricity to the grid. Prices rose from $50 per MWh to the market cap of $9,000 per MWh, which represents the scarcity value of inadequate capacity. In response to inadequate generation, operators curtailed power to millions of customers to keep the system in balance. When customer consumption was limited to maintain system balance, the price dropped $1,200 to respond to reduced demand. The response of the Texas Public Utilities Commission was to issue an order to enable prices to increase, as if a generator being paid $1,200 was insufficient to incent generator performance. This action demonstrates a fundamental flaw in the over-reliance on markets to provide adequate service to customers. The events of February 15 were not unique. 

Texas has a history of generator failure during cold weather events. In 2011, over 8,000 MW were tripped due to frozen instrumentation, with over 1,000 MW tripped in 2014, 2015, 2016, and 2018. The problem of adequate weatherization is one that should be addressed explicitly through specific generator requirements and penalties for failure to perform. Yet, the regulatory response has been to rely on the market to increase prices during a crisis. This emphasis on markets seems to build on inadequate attention to planning and preparation for cold weather events. Planning documents, such as ERCOT’s 2020 Long-Term System Assessment for the ERCOT Region (December 2020), look only at the weather’s impact on customer demand, and not how to provide service during extreme weather scenarios. It is time to move away from the view that markets solve all ills in the electricity sector. The Texas situation demonstrates the inadequacy of electricity markets to resolve the many issues that accompany changing climate conditions and resources. Raising prices in the middle of a crisis for power plants that are already operating is not the answer. The answer is evaluating the requirements to maintain resource adequacy prior to a crisis, in this case winterizing generating units and preparing to meet those challenges through investments and regulation. 

E.W. Steston III is a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

Zachary Strauss

As a severe winter storm crippled the Texas power system and energy demand soared across the state, roughly 34 gigawatts were taken offline, forcing over 4 million residents to lose power, water, and heat. State legislators, power producers, and energy regulators alike must take stock of how this occurred and what changes must be made to guarantee reliability and resilience going forward. Neither intermittent renewables nor baseload fossil generation were spared the freeze; in order to prevent this from happening again, Texas needs to invest in more power generation from a wider diversity of sources, as well as crucial resilience and weatherization efforts. Greater development of alternative, baseload energies like geothermal, of which Texas has substantial untapped resources, must be explored and expanded. More distributed energy, home storage, and grid-scale windfarms must be pursued. Texas must go bigger.

And while ERCOT—Texas’ standalone power grid—maintains a few tie-in connections to larger US and Mexican power grids, self-imposed energy independence has left the Lone Star State vulnerable. On top of that, the highly deregulated nature of Texas’ electricity sector—which leaves major cities like Houston with virtually no regulatory control over retail energy providers—disincentivizes those providers from investing in resilience measures, cold weather equipment maintenance, and crucial—but expensive—winterization efforts.

This is not the first time this has happened, and in light of climate change and increasing seasonal variation, it will certainly not be the last. Key decisionmakers across the state, from the Capitol to the coast, need to take a hard look at what went wrong, and the political, financial, and technological foresight and investment required to ensure that it does not happen again.

Zachary Strauss is an Assistant Director at the Atlantic Council Global Energy Center.

Branko Terzic

The lesson from Texas this winter is that market structure, market rules, and market governance matter. The lesson from 2000 with the California electricity market failure was not that one could not design a market for electricity trading but that “if you design an electric market badly, it will work badly.” In Texas, the key electricity supply failure was not in the wind and solar sectors, which were expected to have reduced production, but in the unanticipated freeze-off of half of the natural gas power plant fleet. Texas will review what happened there and most likely should require weatherization as recommended in a joint Federal Energy Regulatory Commission and North American Electric Reliability Corporation report following the last weather-related Texas electricity crisis in 2011. Further, Texas should review its reserve margins. Numerous studies by the Energy Power Research Institute and other institutions have demonstrated that the cost of outages exceeds the cost of additional reserve power plants. Reserve margins all across the United States were in the 30-35 percent range in the 1980’s and enabled the economy to grow and protect against outages.

Branko Terzic is the Managing Director of Berkeley Research Group and a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

Ellen Wald

Texas is not getting much power from wind right now because most of its wind turbines are not weatherized for such low temperatures and are now frozen, but that is not the cause of the outages. The real issue is that Texas power plants, electricity infrastructure, refineries, and oil production facilities are not designed for such extreme cold. The blackouts are primarily because of business decisions that were made based on an assessment of risk of such extreme weather events.

We know how to build wind turbines, power plants, and refineries to operate safely and efficiently in such low temperatures. Wyoming has plenty of wind turbines; Siberia has pipelines and oil production. But Texas did not choose to weatherproof for this type of event because it just does not happen very often. The understandable frustration and fear of cold in Texas is a reminder that we need to have serious conversations about power and energy supplies in the United States. Do we expect essentially 100 percent reliability in our power or energy supplies? Or are we willing to face some disruption for costs or environmental considerations? 

This is not just a conversation that has to be had in Texas. These issues arise everywhere. Do we want to pay more for better infrastructure (higher capital costs)? Do we prioritize alternative power sources or costs or reliability? These are questions that are only going to become more pressing as we rely more and more on electricity, e.g. electric vehicles. If our mobility is dependent on the grid and not on gasoline or natural gas, mobility will become less reliable. Is that a trade-off that we are willing to make?

Ellen Wald is the President of Transversal Consulting and a Nonresident Senior Fellow at the Atlantic Council Global Energy Center.

The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

Related Experts: Randolph Bell, Reed Blakemore, Ben Hertz-Shargel, Robert F. Ichord, Jr., Margaret Jackson, Olga Khakova, Julia Pyper, John P. Soughan, Bill Stetson, Zachary Strauss, Branko Terzic, and Ellen Wald

Image: Frozen fountain with icicles at the Bexar County Courthouse in San Antonio, Texas (charzalan/Shutterstock)