Texas and California Blackouts: A Song of Ice and Fire

(Bloomberg Opinion) -- The last thing Texas wants to hear even at the best of times — and these are not those — is that it shares something in common with California.

The causes of the enormous failure of the Texas power system during the long weekend’s arctic blast are, like the grid itself, bound to be complex and wide-ranging. We can expect a volley of jeremiads against wind power, as perhaps half that fleet stopped spinning. But with perhaps more than 30 gigawatts of thermal generating capacity tripping offline, and wind power producing about five gigawatts less than planned, this disaster clearly stretches, as Texas’ grid operator said, “across fuel types.”

That shouldn’t come as a surprise. Texas has been here before. Almost a fifth of the capacity in the Electricity Reliability Council of Texas’ area failed in February 2011, during another unexpectedly ferocious winter snap. Apart from nuclear plants, all types of units went offline. Wind barely figured in the mix then. That was the state’s coldest winter weather since the freeze of Christmas 1989 — which was also the first time in history ERCOT implemented shutoffs to cope. Wind turbines were conspicuous by their utter absence back then.

Yet there is a common theme linking these blackouts over the past 30 years or so: harsh weather in a state unprepared for it.

Ice certainly can play havoc with the blades on wind turbines. It can also play havoc with thermal power plants, freeze coal piles and interrupt gas supplies in all sorts of ways, ranging from freezing gas wells to power shutoffs to compressors and, most of all, diverting fuel away from generating plants to home heating.

It is possible to mitigate these impacts. Winterization packages keep wind turbines running, and heat tracers keep fluid lines and gauges functioning in thermal plants, for example. Gas plants can also pay extra for committed, or “firm,” supply that prioritizes them in a pinch.

Such forms of insurance are found across power systems. Indeed, a well-functioning grid is one large exercise in redundancy. Apart from heating equipment and fuel-supply contracts, we build generating capacity that sits idle for large parts of the year to cushion spikes in demand. We often also have incentives in place to encourage large power users such as factories and office blocks to dim or switch off the lights when supply is tight. And insurance, as always, comes at a premium.

This is why the desire to blame a disaster like the current one on this or that type of power plant is simplistic and distracts from the real issue.

Texas is experiencing what will be called “unprecedented” conditions, as is a large swath of the Midwest, which is also suffering blackouts. Moving further afield, and across time, the same nomenclature was used to describe the polar vortex conditions that hit the PJM grid across the mid-Atlantic states in January 2014. Similarly, California suffered blackouts during a heatwave last August and multiple wildfires in recent years linked to its power grids, especially PG&E Corp.’s in the northern part of the state. These are all, it should be emphasized, very different power systems employing different technologies and market structures. 

The disruptions or outright disasters of these events are often characterized as “perfect storms” overwhelming our infrastructure. In Texas’ case, ERCOT had planned for winter peak demand of about 58 gigawatts versus available capacity of almost 83 gigawatts. In an extreme scenario, it expected demand to peak at 67 gigawatts and maybe 14 gigawatts of its spare capacity to be offline. Even then, the grid would in theory just scrape through with a margin of just over a gigawatt.

Clearly, demand spiked higher and outages were much more widespread, leading to a wholesale collapse in power supply. But the inescapable conclusion is that a grid built and operated primarily to meet spiking summer demand to run air conditioning failed in the face of a winter storm.

This isn’t just a question of making sure components on turbines — whether they run on wind or gas — are adequately heated or have the proper antifreeze lubricants or whatever. It extends far beyond that.

After the 2011 freeze, Texas raised its cap on wholesale power prices to entice more generation to be built. Does that figure need to be raised now? Or does Texas need an outright capacity market to be instituted? Should the state rethink its island status and build more interconnections with neighboring grids? Similarly, many Texan homes are built with the idea of shedding heat rather than conserving it. Does that need to change now?

There are no easy answers because each one comes with trade-offs. When I wrote about the implications of the wildfires in northern California for the state’s grid, the question that kept coming up was “who pays for what?” Energy grids, especially the power network, are exercises in socialized costs; the billpayer in that city apartment subsidizes the otherwise uneconomic line running to that farm 200 miles away, for example. That’s the compact that electrified America.

We now face a situation in the form of extreme weather events and natural disasters that will increase in frequency and ferocity due to climate change. This will test our 20th century infrastructure built primarily with the goal — backed by price incentives — of expansion rather than conservation.

California’s wildfires naturally raised questions about undergrounding cables and replacing wooden poles for power lines with steel ones. Those are already complex questions with costly answers. But the ramifications of a changed climate raise even thornier ones. Should we break up or agglomerate grids? Who will insure homes in fire zones? Where should people live in a state with high housing costs and restrictive planning in less fire-prone areas? Should people living in safer areas subsidize the risk of those housed in relative tinderboxes hundreds of miles away?

These are the sorts of questions Texas now faces. Even as the costs of renewable power fall, they require energy storage systems that remain expensive for now and, as this disaster demonstrates, require extra investment in winterization. Thermal generation may be more reliable, but clearly not reliable enough in its current configuration — and, lest we forget, much of it also contributes to the climate change making these unprecedented events all too precedented.

Nuclear power offers an alternative solution, but one that is very costly and high-risk from a capital-markets perspective. Looking further out, having a million electric vehicles with a 70 kilowatt-hour battery in each parked off Texas’ snowy roads could offer a big resource to draw on in an emergency — but only with the right price incentives and technology in place.

When a system fails, whether it be a state-wide power grid or just a bathroom tap that worked yesterday but suddenly doesn’t today, we yearn for the simple fix. That loose screw or one component that, if tightened or replaced, will set everything right again. It’s harder to admit that what we built worked fine for generations but just isn’t made for these times. Increasingly, though, that’s where we are.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

©2021 Bloomberg L.P.