We all have been impacted by the February ’21 Polar Freeze in Texas.
What really happened and how the results will affect the future energy cost is a major concern for all Texas businesses, large and small. Residential too, will be greatly affected.
I have been asked many questions recently. Yet the first and most popular question sees to get to the point quickly, “what really happened in Ercot?” and second, “what does the future electricity cost look like” and how to maneuver through this seemly unknow future?” Here we go as I walk you through it.
It is simple, Texas almost lost power to its power grid. Due to several major factors, Texas was minutes away from going dark last February. Was it the Cold weather, was it the lack of attention to winterization of power equipment, was it the lack of communication from ERCOT to its end users, was it because Ercot is a stand-alone grid and not part of the national electric grid? Can you blame the wind industry or solar farms for the failure? What about the lack of Natural Gas to these electricity generating facilities? These are a few of the questions haunting the people and industries right now in ERCOT.
There are still no complete nor clear answers, yet we can clear the air on several of these factors and myths.
First let’s look at the fuel supply systems that are used to generate electricity in ERCOT. Wind Energy, Solar Energy, Natural Gas Generation, Coal & Nuclear generation. All fuel systems failed, yes, all systems failed. Here are a few causes you might have here since the event was so catastrophic and well discussed. Power lines were down all over the state. Wind turbines were frozen, and Winds load safety locking devices were automatically engaged. Solar panels were covered with light defusing Snow, Ice, and other material that blocked sunlight. Not to mention there was very little sunlight at all due to the storm. Natural Gas lines were not fully operational due to frozen systems. Every area fell short during the freeze.
One Myth that came out was the question, “that the GREEN ENERGY developers were the culprits. It suggested that were not prepared or winterized. Green energy companies have seen much harsher winter then we had in February yet, the culprit here is probable the engineering standards established for the region they are constructed. Sure, in hindsight we can say they could have been better prepared, yet this myth is NOT THE CAUSE OF THE BLACKOUTS. The reason why is that ERCOT does not include overall production of Green Energy into the demand equation for the energy supply on the Ercot Grid. So, there you have one answer.
Another myth is, that IF ERCOT was not a stand-alone grid and was part of of larger regional grids, Texas would not have had the blackouts and failures that it did. This myth too is incorrect. The surrounding grids (SPP) Southwest Power Pool & (MISO) Midwest Independent Transmission System Operator also had large demands on their power grids. MISO had problems by Sunday with black outs Monday and Tuesday. SPP also had outage problems and did not have power to send to other grids.
Here is the second most widely asked and most important question.
“What does the future electricity cost look like”? and “how to maneuver through it”?
This is not a simple answer so let me address it in several different methods. First –let’s look at the current material cost, production cost, distribution cost and finally the cost of sales. Second - what is being done to avoid future loss of power in Ercot?
Cost of Material
Today Texas has an abundant supply of Natural Gas which has become the strongest factor in pricing electricity generation in Ercot for recent years. With Fracking, the cost started trending downward and yet seems to have stabilized somewhat. The government has approved the sale of LNG overseas and that is expected to trend pricing upwards, yet we are not sure to what end at this point.
Wind and Solar farms are, year after year, becoming a staple and force in the generation space in Texas. Strong winder winds in the panhandle and gulf coastal winds are almost always blowing and the amount of direct sunlight in Texas is very sufficient to satisfy the greatest appetite of solar. Cost of Solar farms has dropped steadily over the past 10 years and product efficiency fuels a very profitable ROI for these farms that have 25+ years of productivity.
Cost of Production
With the abundance of NG in the ERCOT market, the future outlook is bearish at worst and neutral at best during the next few months. This outlook is good.
Mid way through May, Ercot market was in a strong drought with an outlook for a hot summer. Rain was not expected to affect the temperature greatly.
YET, over the past 2 weeks, a large part of Texas has received larger than normal amounts of rainfall, including local flooding in many counties. With this new information, the weather has help provide a neutral range for most of Texas through the month of June.
Cost of Distribution
This is where most of the changes are coming from and are expected through-out this year and into the 2022.
This is Where we are Today
Let’s talk Governing bodies.
The CEO OF ERCOT was asked to step down and has been replaced temporarily. There are many other personnel changes in the wind.
There have been approximately 100 bills introduced to the Texas Senate and Legislation that deal with the events in February’s near disaster, power failure.
Today there are 7 major House bills and 6 major senate bills introduced. These bills are written to protect the grid, toe open better communications, for better transparency and oversite to the entire grid.
Many of the other bills are designed to improve safety for the end users, and to create accountability with in ERCOT and the PUC.
One such bill is the creations of the ERS Emergency Release System. This system Releases warnings to area blackouts, request for demand releases, weather alerts and follow ups.
One of the first bills that was passed was to outlaw the sale of “Index Products” to the residential market. That has cost many families untold thousands of dollars, added debt and was sold with little explanation of the true liabilities, even though a similar event happened several years prior.
The real problem here is this underlining question,
Who is going to pay for the cost to fix the overall grid structure that are old and weak? Transformers that are 20,30,40 years old that are still in service? Local city Governments, county seats, state government, EPA, ERCOT, Texas PUC, National Government Energy Programs, Uncle Sam.
Well, here goes an unclear answer
First, the utility companies own the grid. It is their business; to deliver your power to your home or business. They are governed and approved by ERCOT and the Texas PUC to make sure you receive the power you need and charged a fair price for the Transmission and Distribution of your electricity. It is simply their business. They are responsible to build it, maintain it and to upgrade it as needed or directed by its governing bodies of ERCOT & the Texas Public Utility Commission.
Second, the governor of Texas signed today (6/8/2021) new laws that he said will fix the problems that we saw in the February 2021 freeze. Along with the signature on the bills, the governor issued over 10 billion dollars of Bonds and approved $800,000.00 from the Rainy-Day Fund to fund these upgrades and improvements.
Here is a press release from the Governor’s office.
Governor Greg Abbott today signed Senate Bills 2 and 3 into law to reform the Electric Reliability Council of Texas (ERCOT) and weatherize and improve the reliability of the state's power grid. Governor Abbott made ERCOT reform and weatherization of the power system emergency items this past session. The Governor was joined for the bill signing by Representative Chris Paddie and Senators Kelly Hancock and Charles Schwertner.
Under Senate Bills 2 and 3, Texas will now require the weatherization of power generation facilities, natural gas facilities, and transmission facilities to handle extreme weather. The Texas Railroad Commission and ERCOT will be required to inspect these facilities, and failure to weatherize these facilities can result in a penalty of up to one million dollars. These bills also create a "Power Outage Alert" where Texans will receive an emergency alert whenever the power supply in the state may be inadequate to meet demand. Additionally, this legislation establishes the Texas Energy Reliability Council to improve coordination between state agencies and industry during extreme weather emergencies and extended power outages. Finally, the legislation makes significant reforms to ERCOT, including having eight fully independent board members of the 11-member board, and requires board members to be residents of Texas.
"During the winter storm, too many Texans were left without heat or power for days on end, and I immediately made reforming ERCOT and weatherizing the power system emergency items," said Governor Abbott. "We promised not to leave session until we fixed these problems, and I am proud to say that we kept that promise. These laws will improve the reliability of the electric grid and help ensure these problems never happen again. Thank you to Senators Kelly Hancock and Charles Schwertner and Representative Chris Paddie for your leadership on these important issues."
Is this going to prevent future blackouts and power failures? Let’s just say, it is a start, and this will be answered as we progress through these improvements and corrections to the facilities and grid itself.
Stay tuned for more informative discussions from Affinity Power company regarding when and how to best purchase your energy needs in ERCOT.