This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.

Richard Brooks's picture
Co-Founder and Lead Software Engineer Reliable Energy Analytics LLC

Dick Brooks is the inventor of patent 11,374,961: METHODS FOR VERIFICATION OF SOFTWARE OBJECT AUTHENTICITY AND INTEGRITY and the Software Assurance Guardian™ (SAG ™) Point Man™ (SAG-PM™) software...

  • Member since 2018
  • 1,531 items added with 669,632 views
  • Feb 16, 2021

Scarcity pricing is an economists dream and a Grid Operators nightmare. Texas is now living through the nightmare of scarcity pricing.

I've learned there is more art than science in the economists tool box. The science shines through economic theory, piercing the veil of a "rosy picture", to reveal the real risks when things go bad. I've written about the need to ensure a reliable electric supply in the past.

I've trained myself to trigger that great song by John Lennon, "Imagine", when reading papers on economic theory within electric markets, as a reminder of the artistic nature of many of these design concepts and the need to sprinkle them with a dose of science as a litmus test.

Bob Meinetz's picture
Bob Meinetz on Feb 16, 2021

A CleanTechnica writer reveals the cognitive dissonance that clouds a supporters' logic when presented with direct evidence of the shortcomings of renewables:

"Frozen wind turbines in Texas are causing a huge dip in the state’s power generation capability, reducing available power by almost half. This comes during a record blast of arctic air, which is causing record electrical demand, resulting in rolling blackouts...In reality, though, the rolling blackouts were caused by economics and not renewables."

If A = B, and B = C, then A = Q. Got it!

Matt Chester's picture
Matt Chester on Feb 16, 2021

Another example of these economics is snow tires in Phoenix, Arizona. Sure, there is some rare snow and ice in a city that’s comparable to Baghdad in climate, but it’s so rare that you wouldn’t go spend $600-1000 for snow tires. Your typical 3-season tires in Salt Lake City or Denver are, in reality, all-season tires in Phoenix. The economics of buying snow tires just doesn’t add up in Phoenix.

The reverse is also true. The person living in a cold climate would definitely want the snow tires, and the guy living in Phoenix would definitely want air conditioning. Being prepared for a problem that happens all the time makes great economic sense. It’s money well spent for comfort and safety.

Interesting analogy-- obviously there are certain times where economics need to be thrown out the window, as the safety and necessity of keeping power on reliably outweighs strictly looking at homo economicus, but your point on it being an art as well as a science is fair

Richard Brooks's picture
Richard Brooks on Feb 16, 2021

I agree Matt. Safety trumps cost when it comes to life ending events. Spend the $600 on tires to keep your car on the road, and make sure you wear your seat belt too - you can't ensure that all the other drivers on the road are taking the necessary steps to prevent risky outcomes.  Both of these measures cost money and can save lives.

Bob Meinetz's picture
Bob Meinetz on Feb 16, 2021

Matt, big difference between preparing yourself for outlier events and expecting someone else to do it for you.

In the second case, you can trust economics to come first and foremost every time, with safety a distant second. Could you sue your public utilities commission, or a wind turbine manufacturer, or your utility? Sure, but you would lose.

When there is zero incentive for a utility monopoly to invest in anything but the absolute minimum for its customers, that's exactly what it will do. Renewables provide the ultimate excuse - whether it's cold, hot, wet, or dry, outages can always be blamed on the weather.

We're hearing about this episode because it happened in Texas, but it's happening farther north all the time - and it's still blamed on the weather. "Of course your electricity went out - you're in Iowa, it snowed, and the wind turbines froze up. If you don't like it, maybe you should move to Texas!"

Wind turbine shutdowns during polar vortex stoke Midwest debate

Rick Engebretson's picture
Rick Engebretson on Feb 16, 2021

Given the reference to John Lennon's song, "Imagine"  (Lennon Legend), the discussion of this cold spell (living in north rural Minnesota), and other familiar things, I'll try briefly make a clear point regarding the "science or economics" debate.

First, "affordable housing" consisting of trailer house parks in tornado alley might fit this debate, too.

More important, rush out and rent or buy the DVDs of the great movie of a great event, "Woodstock." Hundreds of thousands of beautiful, half dressed young people, loving life and each other, 52 years ago. You will have proof positive we are currently living in an insane age of collapse.

Bob Meinetz's picture
Bob Meinetz on Feb 16, 2021

OK Rick, I'm familiar with Woodstock, and this is way off the topic of energy, but I'm not catching your drift.

Either A) 1969 was the Dawning of the Age of Aquarius and 2021 is an Insane Age of Collapse, or B) 1969 was the Dawning of an Insane Age of Collapse, and we're still waiting for the collapse part?

Rick Engebretson's picture
Rick Engebretson on Feb 17, 2021

As always, thanks Bob. The Woodstock movie does a great job showing every angle of bringing together hundreds of thousands of civilized young people. No fighting over scarce food, toilets, or shelter when it rained. The camera work, construction, sound, artistry, event managers were amazing.

So Texas electricity went out when they needed it most this past weekend?? Having a prior reference point of competence and civility simply became important to me.

Bob Meinetz's picture
Bob Meinetz on Feb 17, 2021

Yeah, I have to agree. A friend, Fred Herrera, played bass in the opening act - a band named Sweetwater. Flown in by helicopter, they weren't nervous until they saw their audience - 400,000 people - from the air. Ended up meeting Hendrix, Janis Joplin.

Performers weren't in much better shape than the crowd. Everyone was hanging out backstage together, helping each other to get their equipment to work. Great stories.

Howard Smith's picture
Howard Smith on Feb 19, 2021

The point that is being missed is the market design in Texas is one of the primary causes of the lack of reliability under these extreme conditions.  There is not a "supplier of last resort" that is paid to have the reserves/capacity to cover demand outside of the energy bid market.  Also, the market cannot support the long run investment costs associated with the construction, operation and maintenance including fuel storage, procurement and transportation, if applicable, for these reliability based resources.  In addition, we need to investigate the type of operational and near, middle and long term planning used for reserve margin decision making.  Was the analyses based on EUE, LOLP, LOLH, one hour in five, ten or fifteen year events and what cost/benefit ratio was the determining factor?  Did ERCOT or any or state agency have the authority to require the the build/procurement and payment for these reserve resources?  These are the questions to ask in addition to the other items being debated here.

Matt Chester's picture
Matt Chester on Feb 19, 2021

Thanks for the insight, Howard. The arrangement does appear to prioritize the low price to the ultimate reliability-- and 9 times out of 10 (or, actually, much greater) it works out great for the customer in that way. But we're seeing what happens when that goes wrong. The devastation this has brought will perhaps see that customer base reevaluating the worthwhileness of the current setup and whether paying a bit more over time would be worth avoiding this happening again. 

Gary Hilberg's picture
Gary Hilberg on Feb 22, 2021

Richard - your point is valid.  What many people do not realize is that the longer term economics drive the ability to make these changes.  With the large and growing amount of renewable energy generation with effectively zero variable operating costs the market price in ERCOT drops to below $25/MWH a lot.  Even two days after ERCOT generation recovered, we had negative generation pricing for most of several days this weekend!  Not an issue if you are collecting a PTC or working off an ITC - but if the facility has real variable costs such as fuel and maintenance - difficult to run.  Many will call for capacity markets to solve for this but first we need to understand the base issue.  Also we need to look at where generation actually came from during the worst parts of the storm - 95%+ was traditional sources and it is unlikely that there is a near term economic model for 40 GW of storage in any market.  

Richard Brooks's picture
Richard Brooks on Feb 22, 2021

This quote from Keynes comes to mind: "In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again."

Richard Brooks's picture
Thank Richard for the Post!
Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.
More posts from this member

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »