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Reflecting on the Causes and Consequences of the Texas Energy Crisis

Robert Stavins's picture
Professor & Director John F. Kennedy School of Government, Harvard University

Robert N. Stavins is the A.J. Meyer Professor of Energy & Economic Development, Director of Graduate Studies for the Doctoral Programs in Public Policy and in Political Economy and...

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In mid-February of this year, a series of severe winter storms swept across the United States, due to the jet stream dipping particularly far south, stretching from Washington State to Texas, and running back north along the East Coast, allowing a polar vortex to bring exceptionally cold air across the country, and spawning multiple storms along the jet stream track.  This weather phenomenon resulted in record low temperatures throughout the state of Texas, with temperatures in Dallas, Austin and San Antonio falling below temperatures in Anchorage, Alaska!

In Texas, this led both to dramatic increases in electricity demand for heating, and – at the same time – drastic reductions in electricity supply, as natural gas, nuclear, and wind generating facilities faced a variety of restrictions.  This severe supply-demand imbalance on the Texas electricity grid resulted in what has already come to be called the “Texas energy crisis of 2021,” which according to my most recent podcast guest, William Hogan, was of “unprecedented” scale, scope, and duration.

William Hogan is the Raymond Plank Research Professor of Global Energy Policy at the Harvard Kennedy School, where he directs research in the Harvard Electricity Policy Group.  You can hear our complete conversation in the Podcast here.

In these podcasts – “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program – I talk with well-informed people from academia, government, industry, and NGOs.  Bill Hogan surely belongs in this group, as one of the world’s leading authorities on electricity markets, the founding director of Stanford University’s Energy Modeling Forum, and the founding Research Director of the Harvard Electricity Policy Group.

Among the questions I discuss with Bill Hogan in the podcast are these: 

  • There have been previous electricity grid problems and blackouts – in Texas, California, New York – as well as in other parts of the world.  What made this one so different?
  • What were the the supply-side causes, including for generation from natural gas, nuclear, and renewables?  What about the fact that Texas has its own grid, with limited interconnections?  Was that a major problem?
  • On the demand side, if the state’s high reliance on electric heating was part of the problem, what does that say, if anything, about the fact that California and other jurisdictions seem to be moving toward prohibit natural gas connections for new home construction, because of climate change concerns?
  • Was the nature of the Texas electricity market and its regulation (or lack thereof) a significant factor in the crisis?
  • What about the consequences of the Texas crisis, such as the incredibly high electricity prices faced by some of those who were fortunate enough not to lose their power? 

As I noted above, the Texas energy crisis unfolded when a convergence of winter storms produced record-cold temperatures across much of the central part of the United States, reaching as far south as the Lone Star State. The sustained cold caused significant damage to energy infrastructure in Texas, knocking down transmission lines, freezing natural gas pipelines and pumps, severely pinching supplies, and creating blackouts throughout much of the state.  At the same time, the exceptionally cold weather resulted in spiking demand, as electric heating was cranked up by consumers. Hogan describes the scale, scope, and duration of the crisis as “unprecedented,” characterizing it as a one-in-one-hundred-year event.

“It’s a very tragic situation. Terrible. And when you’re dealing with systems like this, you can plan for some things. And then, when you get outside the envelope, you’re in trouble,” he says.

In our conversation, Bill describes how this situation resulted in a severe energy supply/demand imbalance during which hundreds of thousands of homes and businesses were left without power for days, and some of those who remained on the grid were at risk of receiving extremely high electricity bills (because they had previously opted for contracts which passed on wholesale costs plus a relatively small monthly charge).

Some observers have pointed fingers at Texas’ relatively less regulated energy market as the culprit for the crisis that unfolded, but Professor Hogan largely disagrees.

“One of the claims that has been very popular in certain press articles is that Texas has a free market in electricity. And you can’t have a free market in electricity because of problems like this. And that’s a mischaracterization of what has happened in Texas,” he says. “There are differences in the level of choice. But there are also reliability conditions, operating reserves that are imposed, transmission constraints that you have to respect. So, it’s a complicated mix of engineering and economics. And you have more choice, perhaps, in Texas than you have elsewhere. But I think it’s a mistake to characterize it as just having no regulation.”

Hogan agrees that the Texas energy grid is not equipped to withstand such pronounced and sustained cold snaps as the one in February, but he argues that the state’s electricity market design, which is highly responsive to typical changes in supply and demand conditions under normal circumstances, is one that is admired and hence being replicated in other parts of the country.

“You see evidence in the Western energy imbalance market that’s expanding rapidly because of the pressure coming from renewables. And you see the Southeast electricity and energy market proposed a couple of weeks ago, which is trying to accelerate the amount of trading and the amount of market operations. All of these things are moving in the direction of the Texas energy market,” he says. In general, Hogan concludes, the Texas electricity market design isn’t “as broken as people have claimed.”

My complete conversation with Professor Hogan is the 21st episode in the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

The post Reflecting on the Causes and Consequences of the Texas Energy Crisis appeared first on An Economic View of the Environment.

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