Anti-free market types have claimed that deregulation of Texas electricity markets is to blame for the blackouts earlier this month. They argue that the companies operating power generation facilities didn’t spend enough money to weatherize their plants because the expense would have eaten into their profits. Now comes a written order from the Department of Energy that undermines that argument.
Prior to the cold snap ERCOT submitted a request to the DOE for authorization to power up coal-, gas- and oil-fired facilities to operate at maximum capacity during the storm. The request was necessary because operating these “dirty” plants in the desired way was expected to violate federal emissions standards. DOE approved the request with caveats.
What can we learn from the request and DOE’s response?
First, that ERCOT knew the electrical grid, which relied heavily on renewable and natural gas energy, would be vulnerable in the storm and that thermal capacity needed to be brought online to mitigate the risk. Even if the renewable energy gas operators had hardened their facilities (out of the goodness of their hearts, perhaps), the risk to the grid would still have existed.
Furthermore, we can see that thermal capacity, especially coal, existed in latent form, available on an emergency basis. ERCOT’s reliance on thermal capacity was normally suppressed by environmental regulations, but the grid operator had no need to require hardening of the renewables-based or other infrastructure because it had a ready backup in place. The renewables operators knew this. It was reasonable for them to assume they could simply shut down in bad weather because ERCOT wouldn’t need them.
The last thing to know about DOE’s order is the caveats. One was that environmental penalties for operating the dirty plants were not waived. The other tried to constrain how long the dirty plants would operate, especially by raising the price ERCOT would pay for the power those plants produced (by about $400/Mwh over the pre-storm market price). It is not clear yet what effect these caveats had in practice during the emergency. They likely deterred ERCOT from spinning up the base load supply as much as was truly needed.
The DOE’s order shows that all the known technical risks had been mitigated in a rational way. Texas’s regulated energy marketplace functioned largely as it should have, with the possible exception that DOE tied ERCOT’s hands somewhat during the emergency.