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Extreme Weather Meets Deregulated Power Market in Texas

Mahmut Karayel's picture
Chief Science Officer, Partner, Alta Bering

Investment Banking, Financial analysis and Risk ManagementTeaching (Applied Math, Optimization, Financial Management, Corporate Finance)Application of optimization and simulation technology in...

  • Member since 2021
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  • Mar 18, 2021

Latest data indicates that the electricity shortage in Texas was caused by the grid failing due to ERCOT not being able to balance demand and supply of power. Wind generation is not weatherized for extreme conditions, so it was interrupted. Anecdotal evidence and historical experience indicate that Combined Cycle gas was not ready for the arctic weather either.

ERCOT February Summary

On the other hand, the load on the system increased due to extreme conditions.

Dallas Forth Worth International Airport Weather Report

Ten years ago, in February 2011, Texas lived through a cold spell; power was interrupted. Subsequently, the officials and the politicians were warned against extreme risks of extreme weather events.

Practically nothing was done.

In a deregulated market, there is little incentive to spend money to take precautions to protect the end customer. The main incentive is that you will lose the customer. The end customer is not going to go off the grid. Besides, most power sellers make more money during these extreme events. Prices, which are on average $30/MWh, are allowed to go all the way up to $9,000/MWh. Texas market design incents power companies to operate at the brink of a shortage.

  • Balancing is managed by prices rather than a combination of prices and reserves.
  • The system is isolated, hindering imports and exports.
  • There is no incentive to spend money to weatherize power plants against extreme conditions.

Texas consumers normally enjoy good prices. But sometimes, they get five-digit electricity bills. The consumer can exercise some power by letting their elected officials know of their preferences.

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Mahmut Karayel's picture
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