Texas was battered by Winter Storm Uri in February. With US $200 Billion in damages, it was the costliest natural disaster in Texas history. 70 Americans lost their lives. Energy systems were brought to their knees. North American gas prices fluctuated wildly.
Was Texas a special case?
We think not. In fact, we believe the experience in Texas has an over-riding lesson for everyone.
Managing energy demand has to be a critical risk mitigation strategy for every company, every CEO and every energy regulator everywhere.
To learn from the disaster in Texas, four factors have to be understood:
1. Extreme Weather
Winter Storm Uri was certainly “atypical” for Texas. But the freezing temperatures were no worse than other cold snaps over the past 40 years. For a variety of reasons, the Electric Reliability Council of Texas (ERCOT) did not require generators and utilities to effectively weather-proof their infrastructure.
Climate warming increases the risk of extreme weather events. In the case of Uri, warming air affecting the jet stream displaced the cold Polar Vortex around the Arctic Circle and drove it far south.
Regardless of location, extreme and sustained heat – or cold – as well as catastrophic flooding, will continue to occur. All energy system owners, as well as property owners, should be proactively investing to mitigate climate related risks.
2. Infrastructure Not Weather-Proofed
The lack of cold-weather preparedness negatively impacted all power generators – whether they were fueled by natural gas, nuclear, coal or wind. The natural gas supply literally froze. Even gas extraction was restricted.
Grids need to be designed to provide energy to critical sectors when under stress. But excessive and expensive redundancy is not the answer either. Optimal reliability is a shared responsibility between system operators and energy consumers.
The citizens of Houston, for example, have developed routines for surviving hurricanes coming out of the Gulf of Mexico. Consumers elsewhere need to establish routines for riding out the loss of power.
3. Managing Energy Demand
Texas infrastructure is built to withstand high electricity demand during the summer heat. Ironically perhaps, it was the spike in demand driven by cold temperatures that contributed to the failure of the system.
Proactively managing energy demand can lessen surprise peaks such as seen in Texas. Investing in energy conservation and in proactive energy management will reduce weather-related spikes – whether in winter or in summer.
Buildings can be better insulated. Energy efficient equipment can be installed. Space heating can come from heat pumps instead of baseboard heaters. An on-site generation or back-up electricity storage can reduce power drawn from the grid during high demand periods.
If enough large electricity users took these actions, it could effectively avoid doubling the capacity of transmission lines. Shaving peak demand would avoid overbuilding new generation that would not otherwise be used most of the time.
4. Regulation Is Important
In the 1930s, Texas decided not to join either of the interconnected grids covering the US, thereby avoiding federal regulation (FERC) of electricity transmission crossing state lines. When generators in Texas froze, there was no inter-tie capacity to transmit power from areas unaffected by the storm to offset the power shortage.
However, the Texas electricity market still has a regulator – ERCOT. The failure to prepare for a major winter storm event was not the absence of regulations, it was ERCOT oversight that tolerated inadequate planning.
About 10% of Texas is connected to grids not regulated by ERCOT. Being largely rural, these areas opted to draw supply from neighbouring states and so avoided experiencing the winter storm’s impacts. Those areas also made investments in weather-proofing their systems after the 2011 storm.
Markets and businesses respond to the right incentives. The problem in Texas is that their market design has not properly rewarded reliability – a flaw that market mechanisms could easily remedy. ERCOT has cost effective options if they choose to adopt them.
Power system failures have far more adverse consequences for the consumer than for the producer. When the power goes out, a generator just loses some revenue. Consumers can lose wealth to health.
Our mission at 360 Energy is to help organizations take control of their energy use. For us, the conclusion is clear: Lowering energy demand is in everyone’s self-interest.
A resilient grid is a shared responsibility. System planners and regulators need to first and foremost lower consumer demand. Supplying local loads with clean, distributed generation will empower suppliers and consumers alike to respond effectively and rapidly in real-time, volatile circumstances.
If we learn this lesson from the failures in Texas, we will all be better off.