Challenges for the Texas power grid

Rimshah Javed on 2022-06-21

Business Development Manager

In Texas, electricity demand surpassed 75 GWs on 12th June 2022, breaking the previous record of 74 GWs in 2019. Interestingly, this was on a Sunday, when demand is typically lower and in June which is not the hottest month in the state.

The system operator, ERCOT, has stated that they are well-positioned to meet the increase in demand, however, with frequent critical events it’s worth exploring some of the challenges facing the grid keeping in mind their unique market design.

Texas has a highly self-reliant and deregulated setup. Some insights to consider:

  1. No interconnectors with neighbouring states mean that it is an energy island, procuring its own power.
  2. No capacity market for long term procurement. Peaker plants sit idle and become available only when prices are extremely high (supply low).
  3. It is an “energy-only market”, meaning you get paid for dispatch/selling electricity and not for availability as in the UK and other countries. The nodal structure and congestion constraints make it even more complex.

The market structure and external factors are resulting in unique challenges:

  1. The market incentivises high prices (or supply shortage). Scarcity pricing has gone up as high as $9000/ MWh in 2021.
  2. In recent years there has been an increased likelihood of shortages because of an increase in demand. This could be linked to more extreme weather conditions (warmer summers, colder winters) and relocation of many corporate HQs to Texas driving up demand. With no long-term procurement, the system has become increasingly volatile.
  3. Typically, maintenance occurs in “shoulder months” when weather conditions are mild. However, with heightened unpredictability and increased risk of shortages - there is not enough time for maintenance. The ageing fleet of power plants are at a higher risk of breakdown as their maintenance requests are denied.

With higher likelihood of critical events, the unreliability of traditional power sources is exposed. Power plants freezing in winter 2021 resulted in generation units undergoing winterization rules. However, in May, 6 power plants went offline in a critical time due to high heat.

Wind and solar power have kept the lights on, for example, 40% of generation on 12th June came from renewables. Texas has the second largest wind generation capacity in the world (only behind China), however, without the ability to time-shift generation (batteries) and developing the transmission lines to take on the increased capacity, their full benefit cannot be availed. Grid-connected storage currently stands around 1300-1800 MWs with more than 40 GWs of storage projects in the pipeline (1/3 of which are co-located). While Texas is moving fast to implement a greener grid and support the energy infrastructure, it is still not fast enough.

While the challenges facing ERCOT are unique, there are lessons for other countries with large renewables/ storage assets in their pipeline: enable the market to include green energy sources before stress events become the norm.