Everybody’s got a self-serving explanation of what happened in Texas, but there’s no convenient narrative here.
Everybody’s got a self-serving explanation of what happened in Texas, but there’s no convenient narrative here.
I n the Japanese classic movie Rashomon, three witnesses to a murder give earnest but conflicting accounts of what happened. In the end, the audience is left wondering.
Those hoping to understand what happened to the Texas electricity grid last week know the feeling. Commentators all see proof of their preconceived notions in the disaster. Those on the right blame renewables, those on the left blame fossil fuels. Absence of evidence is not evidence of absence. But ignorance of evidence is sometimes evidence of ignorance.
Over at The Atlantic, Adam Serwer writes, “The crisis in Texas was preceded by more than a decade of Republican control of state government, as politicians focused on culture-war grievances rather than the nuts and bolts of governance.”
In fact, Texas state government has been a model of “nuts and bolts of governance” during several decades of Republican control. That is why nearly a million Californians have moved there, many of them poor people fleeing that state’s smothering safety net for the opportunity to make it in Texas.
Since the savings-and-loan crisis of the late 1980s, Texas has emerged as the industrial engine of America’s economy, leading the country in virtually every sector, from energy and petrochemicals to heavy-machine tools and manufacturing. During much of the Obama presidency, Texas accounted for more than half of all the jobs created in the United States.
The chief reason is that Texas officials have managed to deliver to their citizens a good mix of services at half the cost per person of many other states, while keeping regulations relatively low. Another reason is that, for many years, Texas has had one of the world’s most efficient systems for the production and distribution of electricity. Electricity in Texas is so much cheaper than in California that California pushed the Obama administration to impose California’s system on everybody else, chiefly to eliminate the competitive advantage of states such as Texas. That was the basic idea of Obama’s “Clean Power Plan.”
Texas conservatives have certainly joined the battle on “culture war grievances,” and it is at least a breath of fresh air to hear progressives complaining about people’s grievances rather than fanning them. But the truth of the Texas grid crisis is both more complicated and simpler than most of the explanations you’ve heard — and it consists mostly of “nuts and bolts of governance.”
In rough outline, this is what appears to have happened. As the Texas economy has boomed in the past two decades, the state has struggled to add new electrical capacity. That effort has coincided with a massive shift from coal to natural gas as the “base load” for power generation, in the course of which most of the coal plants in Texas have been shuttered. (“Base load” is the minimum level of demand on a grid over a given time period.) The “supply chain” for gas-fired electricity is more complex and has many more possible points of failure than coal, but the shale boom has made gas America’s cheapest source of electricity — and gas also has the benefit of being far less “carbon intensive” than coal. As a result, Texas almost certainly leads the world in reducing carbon emissions per unit of industrial output.
So new capacity has been desperately needed in order to keep pace with the exploding demand and the retirement of most coal generation. But it has not. Texas has added hardly any new gas-fired electricity since 2015, while wind generation has more than doubled and now accounts for about a third of the total electricity capacity in Texas. Most of the new natural-gas generation of the past decade went to replace the coal that was being retired. So the new capacity required by the Texas’s rapidly expanding economy has come from renewables — chiefly wind.
These are the outward flourishes of a serious problem: Over the past decade, as demand for electricity has surged, the Texas electricity grid’s “reserve margin” (the excess capacity above expected peaks in demand) has become both thinner and more fragile. Several factors are contributing to a problem that’s getting worse in Texas and also across the country.
The first is systematic underinvestment in new “base load” generating capacity, mainly natural gas. Both Democrats and Republicans pressure electricity producers to keep prices artificially low. Because producers are unable to charge as much as they’d like in order to hedge against the demand spikes that they know are coming tomorrow, they don’t add as much reserve capacity as they would in an efficient market. Raising prices during demand spikes is particularly frowned upon by officials. Add massive subsidies for wind and solar (which allow those companies to undercut the competition), and margins are further reduced for gas and coal, another reason for systematic underinvestment in new capacity.
Moreover, the Texas electricity grid now has many more possible points of failure than it did a decade ago. Unlike coal, which can just sit around all day in piles, natural gas for power generation needs to be kept flowing constantly through a fantastically elaborate network of pipelines, and the pumping stations along the way are generally powered by electricity. Many of these were knocked offline during the ice storm in Texas.
Meanwhile, a vastly greater proportion of the electricity grid consists of intermittent renewables with little ability to scale up when needed and an unfortunate tendency (particularly in the case of wind) to scale down at the worst possible time. Utility-scale batteries are getting more powerful, but solar electricity is generally available only when the sun shines, and wind power only when the wind blows, and their supply curves do not track the demand curve on any given day. (Full disclosure: I advise energy companies, including renewable-energy companies, on the process for obtaining federal operating permits). Sure enough, the winds of west Texas died down just as the ice storm struck, putting even more pressure on natural gas.
Texas officials have been aware of this problem for years and have been far from idle. Hearings have been held, reports issued, recommendations made, and strategies enacted. But, as so often happens in democratic governance, solutions have been short-term and marginal, while lawmakers have avoided making the needed structural reforms. As elsewhere, Texas officials have competing priorities, among which are keeping prices low, transitioning to a more “sustainable” energy mix (the term has richly earned scare quotes the last few weeks), and in general throwing their weight around.
Some years ago, the main grid operator in Texas (ERCOT) adopted an innovative scheme for enhanced scarcity pricing, called the Operating Reserve Demand Curve (ORDC). The idea of ORDC is that when electricity demand soars because of extreme weather, and grid operators are forced to draw on reserves, that electricity should be priced according to its value in forestalling rolling blackouts. But the ORDC mechanism can’t make up for structural underinvestment in capacity, or for the greater presence of intermittent sources in the electricity mix. In other words, ORDC can’t make up for excessive government interference in the operation of the electricity market. And just as ORDC has come to other regional grids — such as the mid-Atlantic and Midwest’s Pacific-Jersey-Maryland grid, or PJM — as symptomatic relief for an underlying malady that remains unaddressed, the chickens will come home to roost there, too, inevitably.
Some have attributed the Texas grid crash to deregulation, and a new Wall Street Journal story reports that customers have paid higher rates under deregulation than they did to the established local utilities. But the new power companies had to cover the costs of new plants, while established utilities could keep their old ones and spread costs in other ways. As my former Texas Public Policy Foundation colleague Bill Peacock writes in an email:
These reports compare apples to oranges; Texans are better off today under competition. In 2001, Texans in ERCOT paid 12.26 cents per kWh for electricity. Today, the average offer for new customers is 10.8 cents, with prices as low as 8.7 cents that can be locked in for two years. These prices all beat the average U.S. retail rate, which is 13.35 cents.
The WSJ’s Holman Jenkins has written that our national electricity grid “is designed to shut down, and we are designing it to shut down more often.” Intentional blackouts (often called “rolling blackouts”) are a final line of defense when demand spikes threaten to overwhelm grid infrastructure. They are an inevitable result of thin reserve margins in generation and transmission, and Americans better get ready for more of them.
The Texas grid collapse came as a shock to many people and led to millions of heart-rending stories such as those that Adam Serwer, John Davidson, and others had to go through with their families.
After such a failure, finger pointing is to be expected, and that has followed a familiar pattern. Proponents of regulation argue there wasn’t enough of it, while proponents of free-market efficiency argue that there wasn’t enough of that.
But sometimes, the explanation for such failures is simply that our system of regulated markets often arrives at the wrong mix of regulation and market efficiency. Sometimes that is because any reforms have to build upon an existing system, rather than starting fresh from the bottom up. Other times it’s because market planners are not omniscient — the most basic flaw of socialism, as Friedrich Hayek demonstrated. Capacity problems would rarely arise in an efficient market, but efficient markets rarely arise in the modern progressive state.
All these problems were visible in Texas last week, but even there it appears that simply weatherizing the grid a bit better could have forestalled the crisis. Still, that would have done nothing to fix the frightfully thin margins on which its grid is now operating. What seems to have been missing in Texas more than anything was enough natural gas and coal power to make the deployment of huge new renewable resources “sustainable” in a basic sense.
Government planners live and breathe in the world of politics, not market signals, and the problem afflicts both parties. Democracy is inescapably based on incremental improvements born of compromise, and those compromises tend to enshrine the confusion and disagreements of contending factions more than any coherent strategy. That indeed is one of democracy’s frightful vulnerabilities, and it is plainly visible in both foreign and domestic policy: We minimize short-term costs even at the risk of maximizing long-term ones.
Perhaps that, more than anything, is what led to the Great Texas Power Crash of 2021.