The power problems in Texas didn’t start with the recent winter storm. They started long before the Lone Star State had any electricity at all.
A little more than 160 years ago, a special convention in Texas voted to secede from the United States.
It was the beginning of a mindset that’s still part of Texas today. In essence, Texas doesn’t want the federal government meddling in its affairs.
We’ve all heard the saying “Don’t mess with Texas.” And there’s a lot of truth behind that…
Texas has a lot to be proud of, for sure. Most of our fossil fuel comes from the state.
And it’s shaping up to be America’s new technology powerhouse. But that won’t happen without a reliable electric grid.
Last week, Texas came to a grinding halt. It had no power and little water. Water plants need electricity to run the pumps and purify the water.
So why did Texas’ electric power grid fail last week? Let me explain…
More Like the “Alone Star” State…
The U.S. electrical transmission grid is actually three separate grids. There’s the Western Interconnection, the Eastern Interconnection, and the Electric Reliability Council of Texas Interconnection (ERCOT).
The Western Interconnection and Eastern Interconnection regions have six major grid interconnections. And there are many connections between states in each region.
When those regions have major weather events that take generators offline, grid operators can call on neighboring states or regions to supply additional power and keep the grid operating.
However, there are only two ties between the Eastern Interconnection and ERCOT. And ERCOT has no connections to the Western Interconnection.
Last week, when generators in Texas started tripping offline as a result of the ice and cold temperatures, grid operators couldn’t meet the demand. And because ERCOT has very few ties with the other energy grids, it couldn’t get power from anywhere else. The storm knocked about 30 gigawatts of generating capacity offline.
So, basically, Texas was all alone… as it elected to be more than 160 years ago.
Additionally, ERCOT is an unregulated power market. That means prices can move higher when demand exceeds supply. And they moved 10,000% higher!
ERCOT’s wholesale electric prices in Houston during normal times run about $22 per megawatt-hour (MWh). But during the storm, those prices were more than $9,000 per MWh.
Now customers with variable-rate electric plans are seeing some astronomical bills.
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When Gas Turns to Ice
You may be wondering why Texas’ grid was so susceptible to winter weather in the first place. Some politicians were quick to blame frozen wind turbines. But wind turbines provide only 10% of power in Texas during the winter.
The rest comes from thermal plants. Most of those run on natural gas.
Texas is normally awash in natural gas. Its Permian Basin is one of the largest gas fields on the planet.
But gas stopped flowing to Texas power plants when wellheads and delivery lines froze from condensation that is normally present in natural gas.
And suppliers typically don’t spend the money to winterize distribution systems. They can get away with it 99% of the time due to the region’s warm climate.
Texas’ electric utilities also stopped working with no gas supply. Natural gas-fired generating turbines went off the grid.
I’ll wager that after all the dust settles, Texas utilities will implement more renewable energy sources combined with energy storage capacity.
And that will be a boon for the renewable energy companies that service the region.
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Still, some Texans are taking matters into their own hands. My friends who live in Austin called their electrician and got on a waiting list for a whole-house backup generator.
Power Problems: They’re Bigger in Texas
Electricity is easy to take for granted until you don’t have it. Then you can’t get it back fast enough.
So the proud state of Texas might have to eat a slice or two of humble pie. It needs to winterize its power grid and gas distribution.
Adding a few more connections to the Eastern and Western Interconnections is a good idea too. That will greatly improve Texas’ access to other power sources when it’s critically needed.
Today, there are plenty of companies disrupting the power sector (in a good way). I’ll be sure to keep you updated on the latest news within this industry.
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Good investing,
Dave
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