Wrong incentives in Texas: "They do not see any profit from having stand by capacity ready to help out in emergencies."

 Source:

https://judithcurry.com/2021/02/18/assigning-blame-for-the-blackouts-in-texas/

“TRADITIONAL PLANNING
“Traditionally, responsibility for ensuring adequate capacity during extreme conditions has fallen upon individual utility providers.

A couple decades ago I was responsible for the load forecasting, transmission planning and generation planning efforts of an electric cooperative in the southeastern US.

My group’s projections, studies and analysis supported our plans to meet customer demand under forecasted peak load conditions.

We had seen considerable growth in residential and commercial heat pumps.

At colder temperature, these units stop producing heat efficiently and switch to resistance heating which [requires substantially increased power and therefore] causes a spike in demand.

Our forecasts showed that we would need to plan for extra capacity to meet this potential demand under extreme conditions in upcoming winters.

I was raked over the coals and this forecast was strongly challenged.

Providing extra generation capacity, ensuring committed (firm) deliveries of gas during the winter, upgrading transmission facilities are all expensive endeavors.

Premiums are paid to ensure gas delivery and backup power and there is no refund if it’s not used.

Such actions increased the annual budget and impact rates significantly for something that is not likely to occur most years, even if the extreme weather projections are appropriate.

... Our CEO, accountants and rate makers would ideally have liked a lower extreme demand projection as that would in most cases kept our cost down.

...Who is responsible for providing adequate capacity in Texas during extreme conditions?

The short answer is no one.

The Electric Reliability Council of Texas (ERCOT) looks at potential forecasted peak conditions and expected available generation and if there is sufficient margin, they assume everything will be all right.

But unlike utilities under traditional models, they don’t ensure that the resources can deliver power under adverse conditions, they don’t require that generators have secured firm fuel supplies, and they don’t make sure the resources will be ready and available to operate.

... Unlike all other US energy markets, Texas does not even have a capacity market.

By design they rely solely upon the energy market.

This means that entities profit only from the actual energy they sell into the system.

They do not see any profit from having stand by capacity ready to help out in emergencies.

The energy only market works well under normal conditions to keep prices down.

... Unlike the traditional approach where specific entities have responsibilities to meet peak levels, in Texas the responsibility is diffuse and unassigned.

... Anyone can look at Texas and observe that fossil fuel resources could have performed better in the cold.

If those who owned the plants had secured guaranteed fuel, Texas would have been better off.

More emergency peaking units would be a great thing to have on hand.

Why would generators be inclined to do such a thing?

Consider, what would be happening if the owners of gas generation had built sufficient generation to get through this emergency with some excess power?

Instead of collecting $9,000 per MWH from existing functioning units, they would be receiving less than $100 per MWH for the output of those plants and their new plants.

The incentive for gas generation to do the right thing was taken away by Texas’s deliberate energy only market strategy.

The purpose of which was to aid the profitability of intermittent wind and solar resources and increase their penetration levels.

... Incentives and responsibility need to be paired.

Doing a post-mortem on the Texas situation ignoring incentives and responsibility is inappropriate and incomplete.”