Here is what really caused the Texas power disaster – Doctrinaire “Free Market” thinking.

https://www.wsj.com/articles/texas-freeze-power-grid-failure-electricity-market-incentives-11613777856?mod=e2tw

From the leftist Wall Street Journal . . .

“The core problem: Power providers can reap rewards by supplying electricity to Texas customers, but they aren’t required to do it and face no penalties for failing to deliver during a lengthy emergency. That led to the fiasco that left millions of people in the nation’s second-most-populous state without power for days. A severe storm paralyzed almost every energy source, from power plants to wind turbines, because their owners hadn’t made the investments needed to produce electricity in subfreezing temperatures.”

52 thoughts on “Here is what really caused the Texas power disaster – Doctrinaire “Free Market” thinking.

  1. I’m not a big fan of industry “regulation” largely because it typically does more harm than good.

    However, capitalistic anarchy is both unworkable and unacceptable. In this case as in the sub-prime meltdown instance it is mandatory that reasonable restrictions and effective monitoring be in place for the public good.

    Liked by 1 person

    1. “I’m not a big fan of industry “regulation” largely because it typically does more harm than good.”

      Me neither. But essential natural monopolies are an exception. There may not be many of those, but the power system is one.

      Liked by 2 people

    2. RE: “In this case as in the sub-prime meltdown instance it is mandatory that reasonable restrictions and effective monitoring be in place for the public good.”

      It might seem so, but it is hard to find similarities between the two events. In the sub-prime meltdown, regulators arguably could have acted but didn’t because no one was sure there was a real problem that needed a solution. In the Texas blackout, regulators knew the problem was real and were taking action, but the storm preempted them.

      There was no capitalistic anarchy in Texas, just a slight bureaucratic lag in addressing a known engineering problem. If you want to place blame, blame government, not markets.

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      1. …” regulators knew the problem was real and were taking action, but the storm preempted them.”

        Ignoring a recommendation from 10 years ago is the only “action taken”, that I have seen. Even the most inefficient bureaucracy could have taken some action to weatherize their systems.

        The government of Texas is to blame only for allowing unregulated utilities to ignore recommendations to prevent a problem that occurred in 2011.

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  2. You have to be careful what you call a free market and when you assign blame to the market.

    There are no truly free markets in electricity at the consumer level. We buy electricity in bulk collectively.

    Every time you put a regulatory thumb on the scale there will be unintended consequences. That results in something less than a free market.

    In this case, wind and solar were subsidized, thus elevating their share of base load, but the backup sources were not subsidized. That was a bad idea. If wind was to be subsidized, then the SAME PROVIDER should be required to provide the backup. If you subsidize Wind Inc and not Backup Inc, don’t expect Backup Inc to be there when you need it.

    Does anyone in the private sector enter into a contract for a necessary service over time without a performance clause? If you’re making cars, do you not require the supplier of your radiator caps to guarantee delivery on time or face a penalty?

    But ERCOT contracted with suppliers based on how much they delivered, at a sliding rate based on demand, but had no penalty for failure to deliver. In effect, ERCOT acted as a purchasing agent for the people of Texas and simply was incompetent. Had the agreement to purchase energy from suppliers at a premium rate in peak conditions also carried penalties for failure to deliver the suppliers would have had an incentive to protect their operations.

    So, the problem that was not the marketplace so much as that we sent incompetents into the marketplace to represent us.

    And of course, a really big failure is one that I failed to anticipate. That is that when electricity is in high demand in summer, natural gas makes a great backup, but it is not a good backup in cold weather when the direct demand for gas is also high, and the market is unable to keep up.

    Coal can be stockpiled, natural gas cannot.(Well, it can but it is harder) so we should require those subsidized wind farms to have coal fired backup ready and maintained in return for their subsidy.

    Markets are still the most efficient way to allocate resources, but you can’t send an idiot to market to buy for you.

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    1. El Paso came through just fine. They winterized all their sources and opted to join the Western grid.

      What is shocking are the bills that some Texans are getting from Giddy, a supplier of electricity. Thousands of dollars based on a formula of supply v demand. A system of wholesaling electric power that individuals can buy into to save some money in the summers. Lose power and get billed into oblivion.

      Texas’ system is a mess. The blame game will continue as the right wing is peddling the whole failure as a direct result of some wind generators.

      It was profitable to not winterize. Even when warned for a decade. That extra profit will come in handy as the lawsuits pile up. And regulatory avoidance by skipping the grid will have been very, very costly. I suspect there will be a new system in place.

      I also suspect that Texas might just turn blue…literally. The costs and issues for Texans will last for years. Photos of ice cascading down staircases and from ceiling fans will be front and center in 2022.

      PS: wasn’t it Texas that gave us Enron, a scandal that wiped out the savings of thousands? Maybe it is time for the secessionists to get back to work. 😇

      Liked by 2 people

    2. Read the article. Of course at the consumer level there is no free market. That is why regulation of utilities is the norm in most parts of the country. Regulations that require adequate investments and which discourage speculation. But not in Texas. Their system became a free-for-all at the wholesale level which is why (a) nobody invested what was needed for energy security and (b) homeowners now face five digit electricity bills. It was the doctrinaire “free market” thinking that said markets will do a better job than regulators in pricing of electricity. They didn’t. Such thinking just put the public at the mercy of greedy speculators.

      And the use of wind turbines (subsidized or not) had next to nothing to do with any of this. But, all the finger point at them serves to illustrate the rampant dishonesty of anti-environment “conservatives” who – in spite of all the evidence – keep trying to spread the word that they did.

      Liked by 1 person

    3. RE: “Markets are still the most efficient way to allocate resources, but you can’t send an idiot to market to buy for you.”

      Well put. In Texas, first the wind turbines failed. For a time the natural gas generators made up for the loss, then they, too, started failing. The grid managers tried to implement rolling blackouts to preserve the system, but the blackouts didn’t “roll,” they became long-lasting.

      From an engineering point of view, the wind turbines were the first point of failure that led to all the rest. Sure, they could have been weatherized; engineering could have solved the problem, but had gas or coal generators existed in the windmills’ place, the system as a whole would not have been vulnerable at all.

      That’s the technical error the idiot went to market and bought.

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      1. “From an engineering point of view, the wind turbines were the first point of failure that lead to all the rest.”

        That is simply FALSE. The wind turbine part of the system performed BETTER than they had any right to expect after they made the decision to skip investing in winterization kits. It is NOT a failure when a component does better than planned. Repeating something that is FALSE over and over again does not make it true. Sorry.

        Liked by 2 people

      2. You are dismissing the effects of cold on all generation sources. Even if all the windmills were just turned off or non-existing gas, coal and nuclear couldn’t deliver either.

        But why pass up an opportunity to blame AOC which is exactly what Abbott and other GOP apologists were doing.

        “See what happens when alternative energy sources fail. The everything else fails too because we say so.” Or so I have been told by “them”.

        Liked by 2 people

        1. RE: “You are dismissing the effects of cold on all generation sources.”

          No, I am pointing out that in the actual event the existing gas generators picked up the slack (for a time) as windmills went offline. Had every windmill been a gas generator instead, there wouldn’t have been as many failures, as the gas generators that picked up the slack demonstrated.

          As Dr. Tabor puts it, windmills are inherently unreliable to sustain critical peak supply.

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          1. You “conservatives” can shuck and jive until you turn blue. You can pretend to not understand the very clear cause of the catastrophe even after the WSJ makes it crystal clear. Whatever the technical limits of wind turbines may be, they were well known. Whatever backups SHOULD have been available was not a mystery. The winterization measures for gas, coal and nuclear plants that could have kept them on line were well-known. The people making decisions had all this information and decided they could make more money by taking a chance on the weather so that is what they did. They lost. And lots of people died. In the end they are going to learn the lesson yet again – penny wise and pound foolish.

            And the big picture is very, very clear. In some areas, regulation is a must because markets will inevitably fail to protect the public. Production and distribution of electricity is one such area.

            Liked by 2 people

          2. “Had every windmill been a gas generator instead, there wouldn’t have been as many failures”

            Uh, no. Had every windmill been a gas generator instead then the pressure in the gas system would have failed even sooner and the blackouts would have been worse, longer lasting and more damaging.

            Liked by 1 person

          3. RE: “The people making decisions had all this information and decided they could make more money by taking a chance on the weather…”

            I don’t buy “make more money” as the motive, as I can’t read minds. I don’t even know who’s mind I should be trying to read to discover that particular motive.

            It couldn’t have been the Ercot executives for two reasons:

            • Ercot is a non-profit corporation.

            • Ercot was aware of reliability engineering standards that were being developed and would likely be implemented, upping suppliers’ costs. The storm came along too soon for that to happen.

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          4. “Ercot was aware of reliability engineering standards that were being developed and would likely be implemented, upping suppliers’ costs. The storm came along too soon for that to happen.”

            Let me say this very slowly for you, because it seems you are missing something in your discussion: TEN FREAKIN’ YEARS.

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          5. ERCOT operates the grid, not the individual power stations that were not adequately winterized for the conditions experienced.

            ERCOT COULD have required higher standards of, say, winterization but they did not. They are a creature of their owners – power producers and sellers.

            I note that you are now denying that the managers of for-profit enterprises make decisions for profit. Maybe they do, but you cannot read their minds. Laughable.

            Liked by 1 person

          6. RE: “I note that you are now denying that the managers of for-profit enterprises make decisions for profit.”

            Don’t be ridiculous. Where was the profit motive that allowed the grid to be poorly designed?

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          7. “Don’t be ridiculous.”

            With all due respect, you are the one who is being absolutely ridiculous. The facts presented in the WSJ piece are not complicated but you continue to either pretend to be or actually are totally incapable of following what they have clearly written.

            “Where was the profit motive that allowed the grid to be poorly designed?”
            A stable grid capable of dealing with cold weather requires the producing parts to be winterized. There was no incentive to winterize because it meant reducing profits in preparation for an event that was thought to be unlikely. THAT is where the profit motive lead to decisions that proved to be BAD.

            Leave the obvious issue of cold weather out of it. A stable grid needs what is called “spinning reserves” – generating capacity that is hot and ready to produce power. NOBODY in the Texas system could make money with spinning reserves so they were inadequate. Every single day. In regulated systems, utilities are allowed to include the cost of spinning reserves in their pricing structure. When prices are not regulated and there is no penalty for not having them, spinning reserves will inevitably be short-changed. Again the profit motive leads to BAD decisions.

            Liked by 1 person

          8. The most grievous oversight is the independence from the grid. The money saved from avoiding federal regulations is going to be long, long gone.

            In any case, the responsibility of power companies is to provide reliable, constant power with few interruptions. If that is the goal, then profits can be based on what is left after providing a service for which monopolistic benefits are bestowed.

            Power companies are not in the gambling business. Particularly when health, safety and lives are at stake.

            These companies were warned for 10 years to prepare and they did squat. And that explains the efforts to cast blame on windmills that they did not even bother to winterize.

            Liability, both economic and political will be huge. There might very well be major bankruptcies and even jail terms as investigations proceed over the years.

            So far this might exceed Texas’ worst natural disaster in history. Somehow I think taxpayers are going to be on the hook. And conspiracies will be plentiful. Gates blocking the sun and Biden controlling the weather are already favs of the ignorati.

            Liked by 2 people

          9. RE: “NOBODY in the Texas system could make money with spinning reserves so they were inadequate.”

            The gas and coal generators could have provided the spinning reserves in this particular weather event, if they hadn’t been displaced. So could have weatherized wind turbines, maybe. What you really mean is that the wind generators made money from wind generation that they could not have made otherwise. But wind generation as it existed is what caused the grid failure.

            You really should be arguing that chasing wind profits caused the blackout, but that would undermine your support for wind-based generation of electricity. Instead, you make the fallacious assertion that profit seeking caused all the problems.

            Pitiful.

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          10. RE: “In any case, the responsibility of power companies is to provide reliable, constant power with few interruptions.”

            That’s a nice theory. Who should have imposed that responsibility on Ercot before the storm? Remember that Ercot is a non-profit corporation, not owned by any other entity. Its only role in this mess was to serve as grid operations manager.

            RE: “These companies were warned for 10 years to prepare and they did squat.”

            What companies are you talking about? In Texas Ercot is the only one. It was aware that new reliability standards for power generation facilities were in the works, but not yet published, and not yet enforceable. What should Ercot have done, gone rogue with gun-toting enforcers?

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      3. If we are going to use wind power as part of the base load, OK, but never as part of a critical peak supply.

        The right way to winterize wind turbines in an area that rarely has deep cold weather is to safely feather them and ramp up the back coal fired plants that have been kept operating at a idle level. You have to have the backup anyway, so when it gets cold, use it instead of expensive cold weather adaptations that will rarely be used.

        But you have to have the coal backup, natural gas would be a great backup in a heat wave but with everyone trying to use gas to heat homes and businesses at the same time it is unreliable.

        And the same company that runs the wind power should be responsible for the coal backup. The subsidy and the responsibility should be in the same hands.

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        1. Let’s stipulate that you are correct on every technical point. Were the people making all the bad decisions incompetent? Or were they following the market incentives in their own best interests. The whole point of the WSJ piece is that these very poor decisions were market-driven.

          If there is no penalty for closing down a power station because it is cold then why spend the money to winterize it? Tell your shareowners their dividends have to be cut to finance winterization? In Texas where such cold weather seems unlikely? I don’t think a rational management team would want to do that.

          Liked by 1 person

          1. RE: “The whole point of the WSJ piece is that these very poor decisions were market-driven.”

            No. The only thing market-driven was the price of electricity. The market didn’t cause the grid design failures.

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          2. “market didn’t cause the grid design failures.“

            The unfettered profit motive without oversight did in fact “cause” the failure.
            The “design” was the result of cost minimization driven by profit maximization.

            You can’t simply simplify it as the “price of electricity”.

            Liked by 2 people

          3. “The only thing market-driven was the price of electricity.”

            LOL!

            None so blind as those trying very, very hard not to see!

            If for-profit utility management thinks there will be a very limited market for electricity on freezing cold days in Texas then their not investing in winterization to serve that market is a “market-driven decision.” IMHO. But quibble away if that is all you have left.

            Liked by 2 people

          4. In your time in corporate leadership, would you have entered into a purchase contract with a supplier for time critical supplies without some guarantee or penalty for non-performance?

            Was any regulation required for your decision or was it simply due diligence for operating in the marketplace?

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          5. Purchase contracts? ERCOT does not purchase anything. I am not sure what the point of your question is? ERCOT is controlled by a Board whose members are representatives of mainly the electric power producers, distributors and retailers who use its services. It does not buy electricity. It manages the flow and acts as a clearing house for transactions with consumers and among its members. There are almost 700 different power plants putting electricity on the ERCOT grid. How could it dictate penalties for being offline – plants NEED to go offline all the time for a variety of reasons.

            SHOULD it have acted more like FERC and set higher REQUIRED standards for winterization, maintenance, safety, provision of spinning reserves, etc.? It is easy to say, “Yes” and that is the problem. They did not want FERC. They did not regulation. They wanted the wheeling and dealing of an unregulated market. They got it. The rest is history. Massive deadly failures, probably billions in torts and 4-5 digit home owner bills that will never be collected.

            Liked by 1 person

          6. RE: “If for-profit utility management thinks there will be a very limited market for electricity on freezing cold days in Texas then their not investing in winterization to serve that market is a ‘market-driven decision.’

            Ercot does not provide “for-profit utility management.” It provides not-for-profit management of the electrical grid. Put another way, it performs a technical service, not a management service.

            You are tilting at windmills, literally.

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          7. RE: “The unfettered profit motive without oversight did in fact ’cause’ the failure.”

            How did it happen? How did causing the failure occur in the real world?

            For-profit companies offered and built wind-based generation facilities. A non-profit technical services company allowed those facilities to connect to the grid it operated.

            How were the wind-based electricity suppliers at fault in pursuing profits? How was the non-profit corporation at fault for seeking profits?

            You got some ‘splainin’ to do.

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    4. …” but the backup sources were not subsidized.”

      The continued insistence by you and JTR that there are no subsidies for coal, oil and natural gas is exceptionally stupid. Those energy sources have been subsidized for decades. Saying they are not is a lie.

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        1. I didn’t say there weren’t. I just pointed out AGAIN that claims of unsubsidized energy sources are a LIE. Period.

          “Accounting conventions? WTH? Government subsidies are now “convention”?

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          1. No, there are no net subsidies to petroleum or coal. People often cite the depletion allowance as a subsidy, but that is an accounting provision similar to depreciation that is applied to all mining from sand to gold.

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          2. …” there are no net subsidies to petroleum or coal”

            Horse Hockey! If there were truly NO subsidies, especially to petroleum companies, there would not be quarterly profits in the $10 BILLION range on a regular basis.

            You can attempt to couch it however you want, but fossil fuel companies have been subsidized for decades.

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          3. Why would subsidies be necessary for a business that provides a product people need and want at reasonable prices to make a profit? Oil company products are not unreasonably profitable for the risk involved.

            Subsidies are only necessary for businesses selling something people don’t want or selling it for too high a price.

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          4. “Why would subsidies be necessary for a business that provides a product people need and want”

            Asking that question does not refute the fact that the subsidies exist.

            And the reason they exist is pretty clear in the historical record. Beyond the constant attempts of every major industry to get money from the public till and favorable tax treatment, there was the reasonable fear of too much dependence on unreliable foreign sources of energy that motivated a wide variety of financial incentives to promote energy independence.

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        2. “Show me the subsidy for fossil fuels that are not accounting conventions common to all mining.”

          Just because a tax break is common does not change the fact that it is a subsidy.

          And, of course, you do not want to count as a “subsidy” all the costs of environmental cleanup and paying for health issues that are part and parcel of burning coal and other fossil fuels. But these costs are real and somebody has to pay. World-wide these external costs are in the trillions – every year.

          https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs

          Liked by 1 person

          1. Uh, that is a different question. It may be that direct and indirect subsidies and our absorbing trillions of dollars of social costs has been a “good deal.” At least up to the point where renewable resources have become viable replacements. Maybe so.

            But we are discussing whether fossil fuels have been subsidized and the truth is that they have been. Heavily. And they still are.

            Liked by 1 person

  3. “Free market thinking” didn’t cause the Texas blackout. Cold weather did.

    What does “free market thinking” even mean, and how does it apply to the Texas grid?

    One possibility is “unregulated markets,” but the Texas electrical power market is heavily regulated. As WSJ points out, there was no regulatory authority to compel suppliers of electricity to winterize their equipment, but that represents a regulatory failure, not a market failure.

    Another possibility is “relying on profit incentives to optimize the delivery of goods.” WSJ notes that in Texas, “The high prices operators can reap from such periods of peak demand were supposed to be incentive enough for them to invest in safeguarding their equipment from severe weather.” But the delivery of electricity in Texas was clearly optimized. Prior to the blackout, WSJ notes, “the Texas market had been widely regarded as one of the best.” There was no market failure, only a failure of expectations.

    (This, by the way, is a common fallacy in blame-the-market arguments. In this case, the market performed as promised. It should not be judged on the basis of promises never made or demanded of it.)

    A final possibility is “breaking up monopolies,” which is part of what Texas set out to do. Theoretically, however, monopolies are a natural consequence of free markets, making it a misnomer to define “free market thinking” in this way.

    Bottom line, free market thinking didn’t cause the Texas blackout and, to its credit, WSJ doesn’t really argue that it did. Instead, among the competing interests that designed and implemented the Texas electrical grid, none successfully represented the worse case scenario. That is a perfectly normal outcome of freedom and markets.

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    1. WSJ did not argue anything. They stated the facts of the matter. The lack of regulation let market based for-profit decisions produce disaster. And, as a compounding factor, to keep regulations at bay Texas isolated itself from the national grid and that alone may have allowed the tragic failure to occur.

      Most utilities around the country – and the world for that matter – are regulated and supervised by public authorities. Their pricing is not a function of markets but of costs needed to produce power safely and RELIABLY while returning a fair return to investors. But NOT in Texas. The people of Texas have been sacrificed on the altar of doctrinaire thinking that promised efficiency by delivered tragedy.

      That what occurred IS “perfectly normal of freedom and markets” is precisely why such monopolies should NOT be given freedom nor their decisions trusted to markets.

      Liked by 3 people

    2. RE: “The lack of regulation let market based for-profit decisions produce disaster.”

      How so? Everyone was happy until the weather changed.

      RE: “Most utilities around the country – and the world for that matter – are regulated and supervised by public authorities.”

      The utilities in Texas are regulated. In fact, new regulations that might have prevented the failure were being drafted, but had not been not completed or implemented prior to the storm.

      RE: “The people of Texas have been sacrificed on the altar of doctrinaire thinking that promised efficiency by delivered tragedy.”

      Windbaggery like that could drive a turbine. The reality is that Texas chose one among many market models to support its electrical generation needs. It could have chosen the more expensive PJM model that WSJ describes. That, too, is a free market model according to some definitions. The people of Texas weren’t sacrificed on any alter. They got what they paid for.

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      1. “How so? Everyone was happy until the weather changed.”

        The whole article was the answer to your question. Read it again. No point in my repeating it.

        “Every one was happy . . .”
        Sorry, that is a nonsense argument. The weather always changes and a system that encourages failure to prepare for the inevitable is a system that WILL fail and – as in this case – can produce catastrophe.

        Liked by 2 people

        1. RE: “Sorry, that is a nonsense argument.”

          It is far from nonsense. It is the very essence of the concept of market incentives.

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  4. I just want to add a quick pragmatic note here. First, the WSJ is not “leftist”. It is center-right but pragmatic. That means that, and this is common sense for anyone but an ideologue, that there is a role for markets to play and there is also a role for rules that oversee those markets. You don’t have to have rules, of course, but then you can’t complain when people freeze to death because there were no rules in place to punish companies for not providing heat.

    Liked by 2 people

    1. Dan, my use of the word “leftist” with regard to the WSJ was 100% irony. It was for the benefit of the several Trump supporters populating this forum who are incapable of accepting simple demonstrable facts such as the actual cause of the Texas’s power failures – lack of regulation that created a system that was vulnerable to extremely cold – for Texas – weather.

      Liked by 1 person

    2. Duh, I am new here and I guess missed that you were being tongue-in-cheek. There are a lot of people out there these days who do think of the center-right as being “progressive nuts.” My bad. I checked out some other areas of the blog and there is some interesting stuff there. Thanks.

      By the way, the WSJ had an interesting piece on batteries — https://www.wsj.com/articles/the-battery-is-ready-to-power-the-world-11612551578 — and Bloomberg notes that winterizing wind turbines adds up to 5% to the cost — https://www.bloomberg.com/news/articles/2021-02-16/sweden-shows-texas-how-to-keep-turbines-spinning-in-icy-weather — making it still far cheaper say than coal — https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf . I live where there is lots of winter weather and winterizing equipment is old hat. The NY Times also talked this weekend about how climate change is adding new challenges for planners — https://www.nytimes.com/2021/02/20/climate/united-states-infrastructure-storms.html .

      Liked by 4 people

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