EnergyStatewide NewsTexas Power Grid Passes Summer Tests as State Mulls ERCOT Market Reforms

Despite frequent hand-wringing, the state's largest power grid provided more than enough power to Texans during the summer heat.
September 28, 2022
Summertime in Texas brings the scorching heat, and since the 2021 winter blackouts, it also serves up a heaping portion of frenzy about the health of the state’s main power grid. Despite setting electricity demand records nearly a dozen times since April, the Electric Reliability Council of Texas (ERCOT) power grid lived up to its name.

The all-time demand peak for the ERCOT grid came on July 20, reaching 80,038 megawatts (MW) with about 5,000 MWs of available reserves. The tightest conditions of the summer came a week prior on July 13 when a conservation request was issued by the grid operator.

The factors driving the conservation appeal were high demand caused by high temperatures, low wind generation output, above-expected thermal outages, and cloudy West Texas skies reducing solar generation. Dallas-Fort Worth’s average temperature ranged from 77.9 degrees in May to 86.8 in August and peaked in July at 91.8.

A few days earlier, ERCOT issued a conservation request for similar reasons. In both instances, hundreds of MWs were saved during the conservation period, according to ERCOT, and no emergency conditions were triggered.

“Whether we are breaking 11 all-time peak demand records as we did this summer or preparing for winter, the reliability of the Texas electric grid is our number one priority. ERCOT has worked closely with the Public Utility Commission and elected officials and has implemented many reforms to increase the reliability of the Texas grid,” an ERCOT spokesman said in a statement to The Texan.

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A big reason why ERCOT had little problem coping with the summer heat and rising electricity demand is the 15 percent cushion provided by more consistent deployment of “peaker” plants — generators typically only used during the times of highest grid stress to sell electricity on the “ancillary services” market — and the additional caution with which the system operates.

Price signals kick in sooner than they did previously, a measure intended to bring additional generation on earlier to prevent dipping into the reserve capacity. This measure, along with the others taken, is part of a reprioritization toward reliability above affordability.

But accompanying that increased reliability is a financial trade-off: electricity costs are higher. Through May this year, the ERCOT grid’s Independent Market Monitor projected the operational changes to cost an additional $1.3 billion; that’s before the sweltering summer heat apexed.

Coupled with the securitization loans — state-issued financing divvied out to energy companies to cope with the 2021 blackout costs, allowing repayment to be distributed across 30 years rather than mere months — the power grid that has long been among the most affordable is facing rising costs.

The other point of criticism the grid operator has shouldered is its communication during the 2021 blackouts. “ERCOT has improved its process for communicating throughout the entire industry and is working closely with other government agencies to improve communication during extreme weather events,” the organization said of the other side of its operational changes.

This bore out in July when the grid operator issued the two conservation alerts, notices that purportedly resulted in a hundreds of MW reduction in statewide demand as Texans curbed their usage during the peak hours.

“During record-setting temperatures this summer, Texas set and broke power demand records over 10 times without any system-wide issues or disruptions for the more than 26 million Texans served by the electric grid,” Abbott spokeswoman Renae Eze told The Texan.

“The ERCOT power grid has been able to meet those challenges and respond in record ways, providing more power than ever before and doing so more efficiently, in large part because of the reforms passed by the legislature and signed into law by Governor Abbott. The grid was also boosted by the more than 15 percent increase in power generation over last year. Governor Abbott continues working to ensure the substantial bipartisan reforms passed by the House and Senate last year are properly implemented so that the grid remains stable and reliable.”

The next step for state officials is to finalize the market reforms, a blueprint for which is currently before the Public Utility Commission (PUC). The future of that blueprint remains a large question mark as the agency had previously hoped to finalize the reforms by the end of this year, but some legislators have since indicated their desire to have a say in the path taken next session.

That would push back the changes another six months, and that’s if legislators can agree on a final product by sine die.

The foremost issue that must be grappled with is how to compensate for the subsidies — primarily through the Production Tax Credit — given to renewable operators that put them at a substantial financial advantage over thermal generators. All sources of generation benefit from federal and local subsidies, but renewables benefit more than their peers.

Last decade, renewable developers received $71.2 billion in federal subsidies; thermal sources combined received just $52.2 billion.

One proposal is a firming requirement — a mandate that renewable generators maintain sufficient backup supplies in case they cannot meet their commitments — either through batteries or on-site thermal sources. Another would stick renewable generators with reliability costs shouldered by the rest of the apparatus when they cannot produce.

In July 2021, Abbott directed the PUC and ERCOT to “allocate reliability costs to generation resources that cannot guarantee their own availability, such as wind or solar power.”

Due in large part to the subsidies, renewable energy projects are flooding into the state while thermal generation development is scant.

“As much as I would love to see more renewables [in Texas], the incentives from the federal government are distorting the market,” Pat Wood, CEO of Hunt Power who serves on the Texas Energy Reliability Council, said on a panel about the power grid at The Texas Tribune’s TribFest. “This isn’t the same market when deregulation occurred 25 years ago.”

Back then, the state moved away from its capacity hybrid market system and toward its current form as an energy-only market — wherein generators get paid for how much electricity they produce after the transaction occurs, rather than negotiated upfront.

Wood, who was involved in that system change, also served as the chairman of the Federal Energy Regulatory Commission — the body many critics of the Texas system would like to usher in more regulation and interconnection to the state’s surrounding systems.

“We’ve got to get that investment signal out now,” Wood said of the state’s priority to shepherd in more dispatchable generation development through market alterations. “On my best day as a regulator, I was a D-minus compared to the response of the market.”

Heading into the fall, the state expects less electricity demand as temperatures fall from their summer heights. Despite the clamoring every other day this summer about a potential collapse, no such thing occurred.

As the population continues to grow, both the standard demand and the peak demand on the grid will increase. And at that growth’s center is the economic reality that there’s no such thing as a free lunch.


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Brad Johnson

Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.