Local Energy Flexibility Markets Part 2: Could They Help with Black Swan Weather Rolling Outage Grid Events?

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image credit: ISO Territory Map from FERC. Outage map from PowerOutages.US
Stuart McCafferty's picture
Lead Architect, eaaS, Siemens Smart Infrastructure CTO

2021 Cleanie Award winner. Siemens Smart Infrastructure CTO Office, technologist, distributed energy expert, researcher, author, and climate change warrior. Genuinely focused on doing good for...

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  • Feb 17, 2021

Local Energy Flexibility Markets Part 2:  Could They Help with Black Swan Weather Rolling Outage Grid Events?

By Eamonn McCormickStuart McCaffertyDavid Forfia, & Hans-Arild Bredesen

Figure 1:  ISO Territories and Power Outages February 2021 (source: FERC and PowerOutage.US)

Black swan weather week disrupts power delivery across the US

In February 2021, 150M people were under winter advisories as 'unprecedented' snow and ice storms involving 25 states across the middle of the country. Seventeen states were affected by widespread rolling power outages, including Texas, Louisiana, Oklahoma, New Mexico, Nebraska, Missouri, Arkansas, Mississippi, Alabama, Florida, Illinois, Kentucky, Ohio, New York, West Virginia, Tennessee, and Virginia.  These outages affected the areas that participated in the ERCOT, SPP, MISO, PJM, NYISO, and NE-ISO service territories.

Throughout this black swan weather event, ERCOT instituted rolling blackouts across the Texas territory, affecting millions of Texas customers in order to prevent more extensive and damaging outages.  In a recent ERCOT press release, “The ability to restore more power is contingent on more generation coming back online,” said ERCOT Senior Director of System Operations Dan Woodfin. Since the winter storm began on Monday (February 15, 2021), approximately 185 generating units (out of ~610 or 30% of all bulk generating capacity) have tripped offline for one reason or another. Some factors include frozen wind turbines, limited gas supplies, low gas pressure and frozen instrumentation.

According to ERCOT’s website, day-ahead prices rose steadily from February 12th,  anticipating the shortfall that drove wholesale prices in Texas to the allowed maximum spot price, over $9,000/MWh (normal prices are approximately $30) beginning on February 14th and continuing through the 17th.

ERCOT was not alone.  At the Southwest Power Pool, an Energy Emergency Alert (EEA) Level 3 was issued on Tuesday, February 16, 2021.  Due to extremely low temperatures  and “inadequate supplies of natural gas”, the generating capacity for the entire system dropped below 42 gigawatts, causing them to order their member utility companies to implement rolling blackouts as well.  And, within MISO’s Texas territory, rolling outages were implemented due to losses in generation and transmission capabilities.

Across the country, failures in bulk power supply included all forms of generation – coal, gas, nuclear, wind, and solar. Although there were undoubtedly outages due to downed power lines and infrastructure failures, the bottom line in Texas and other states, even at maximum allowed price, there was simply not enough energy available to support the energy demand.

The people in our industry take our obligation to ensure reliability very seriously. From the line crews repairing the damage during the storms, the plant maintenance crews working in the cold to restore an off-line generator, to the control room staff sleeping onsite to get the power restored.  It’s always all hands on deck when events like this occur. It takes extraordinary dedication to make these sacrifices, work the long hours, and risk lives in terrible conditions to restore electric service.

As climate change weather impacts energy customers with extreme heat and cold conditions, our grid will be severely challenged to support the necessary energy capacity for the increased demand during these events.  And, we can expect these events more and more often.  The net effect of the increasing frequency and severity of natural disasters is that the US electricity grid's resilience is being tested.

How do we increase grid resilience?

The resilience model below was developed by Bie, Lin, Li, and Li in their 2017 paper, “Battling the Extreme: A Study on the Power System Resilience”.  The model has four phases, which are shown in the chart below.

  1. Original Operation Mode - the nominal operating condition prior to an outage event that includes anticipation and preparation for disruption events
  2. Disruption – the outage event (e.g. weather, cyber or physical attack, etc.)
  3. Restoration Strategy – the system’s reaction to the event to resist or minimize the event’s impact to the grid and end customer, the identification of trouble areas and deployment of resources to respond and adapt to the disruption event, and the recovery of grid services
  4. Final Operation Mode – the return (or close) to nominal operational capabilities

Figure 2:  Resilience Model Example

There are three typical answers to how to improve resiliency:

  1. Backup power - Individual residences and businesses could build their own "off-grid" solutions.  At the commercial level, businesses often invest in backup generation years before an event. At the residential level, this investment often happens in real-time just before a forecast ice storm when the home improvement stores sell out of generators and propane heaters.
  2. Grid “hardening” investments - Prior to an event, we can invest in grid robustness or hardening to allow the system to absorb a “shock” to the system.  These grid investments will increase resilience – while some upgrades are no doubt required - they can take a long time, and there is no guarantee they will anticipate the next unforeseen challenge we face.
  3. Controlled rolling outages - When all the other mitigation tools have been used, we are left with one option – controlled outages. Rolling blackouts are blunt, last gasp, extreme measures that prevent an even larger and longer-term issue. When we use this tool has a tremendous impact on people and businesses like California and Texas.

None of these options seem very attractive.  We can use the existing bulk power tools and operating structures to mitigate these events.  We have long-term forecasts, capacity markets, day-ahead, and hour-ahead markets to incent investment and participation before these events. However, this week’s events show they don’t always work.

A different (better?) solution for grid resilience

A new and innovative solution to the problem of "resilience" is being pioneered in Europe – it is the idea of a "local flexibility market." If we create new local markets for local flexible energy, we can simultaneously solve the "resilience and efficiency" and “fairness” problem with the bulk tools.

Local flexibility markets add a more targeted tool to the arsenal to help the grid meet the resilience challenges we are currently facing.  It also:

  • Allows individual choice to participate in the market

  • Increases the use of clean energy resources
  • Reduces grid investments to increase capacity
  • Minimizes and hopefully eliminates rolling blackouts
  • Enables integration microgrids in the community

As a bonus, it improves efficiency because it rewards local energy providers for elastic energy.

The biggest economic problem with our grid today is that we lack the economic signals to build these services at both the bulk and distribution level. Today, we can more-or-less optimally source large high voltage grid-scale clean energy. The real challenge is optimizing local clean energy sources with local flexible demand.

Managing locally available resources in this fashion is a truly revolutionary approach to solving our resilience and efficiency problems. It may seem counter-intuitive, but if we have "organic" resilience at the distribution level, balancing energy supply and demand at all levels of the grid hierarchy becomes more reliable and efficient.  In other words, the benefits of energy flexibility at the local distribution grid propagate upwards to the bulk power system.

In Europe, local energy flexibility is being piloted through the European Market for Decentralized Flexibility called Nodes.

How does a flexible market increase grid resilience?

It’s pretty simple in theory.  When there is overgeneration, batteries and controllable loads increase consumption and absorb the excess.  When there is undergeneration, controllable loads are incented to decrease consumption and batteries discharge.  This makes the distribution level as "resilient as possible" by sourcing flexible supply and demand locally based on the local distribution grid topologies. Thus, we can more easily source cheap intermittent power from the grid because we have the flexibility to increase and decrease consumption.  It means the local grid can operate with more independence and support grid stability.

While we are all familiar with the idea of wholesale electricity markets, we are less familiar with the concept of a local flexibility market. A few key ideas are key to understanding how this can work "bottom up" based on experience from Europe.

  • We can configure local flexibility markets to the particular needs of the distribution system or part of the distribution system in question  - not a one size fits all approach
  • A local flexibility market can operate independently of an ISO and grow organically
  • The local flexibility market can be based on best practice market designs that solve today's problems but also consider the long term needs of the grid
  • The technology to support it is a service – not just software
  • Communities of producers, flexible load and load-serving entities can start small and build-up
  • It can be integrated with existing demand response programs

There are many great examples of how these markets are operating in Europe.

After our recent issues with the rolling blackouts in February 2021, there is an urgent need to consider if this approach could be used here in the United States. This simple (in theory) approach could be one of the “tools in the box”  to accelerate the energy transition and adapt existing European solutions to the US grid's unique challenges.

From an EnergyIoT Reference Architecture standpoint, here are the pieces discussed in this article:

Figure 3:  EnergyIoT Reference Architecture

Flexibility markets are not the entire solution

The power industry has changed significantly over the last couple of decades where generation has become much more distributed.  Consumers are changing into prosumers and with all the complexities this brings.  It means that new and innovative solutions need to be part of the overall power industry “design”.  It is important to emphasize that choosing appropriate solutions is not an “either or” discussion and the portfolio of solutions for one territory may not be optimal for another territory.  However, the main purpose of local flexibility markets is to give access to unexploited capacity to the overall operation of the power system.  Although almost certainly the use of flexibility markets wouldn’t have completely saved Texas and the other states from rolling blackouts due to the inbalance of supply and demand, local flexibility markets are an important new tool to increase grid resilience and efficiency in the next crisis.  But implementing flexibility markets as THE solution will not replace the need for more generation capacity or grid investments, nor will it replace the need to tune regulation and market design to minimize outage impacts to customers during these black swan events.

James Mater's picture
James Mater on Feb 17, 2021

Thanks Stuart.  How does this relate to the whole MicroGrid movement?

Stuart McCafferty's picture
Stuart McCafferty on Feb 17, 2021

Hi James, thanks for commenting.  I think you know the answer to this maybe even better than me.  But, you gotta believe this is going to help the microgrid movement.  Being without electricity is no longer an insurmountable issue if you have the need.  Microgrids provide an islandable self-sufficient private grid and most microgrid providers can establish long-term Power Purchase Agreements (PPAs) that are typically 15-20 years that amortize the cost of development at prices that are close to current electricity prices - and sometimes less.  The price of resilience is really something that hasn't been quantified in any markets, but events like these definitely raise awareness and make people and companies recognize the value of "energy surety".  And, my last 4 consulting projects have been microgrid SME stuff, so maybe this will help there, too!  :) 

Richard Brooks's picture
Richard Brooks on Feb 17, 2021

Thanks for sharing your insights, Stuart. I always make it a point to read your work; I always learn something useful. Thanks.

Stuart McCafferty's picture
Stuart McCafferty on Feb 17, 2021

I'm always learning, Dick.  And, I always get educated when I read your posts as well.  Thanks for all you do.

Dan Shelledy's picture
Dan Shelledy on Feb 22, 2021


Thank you for posting this article.  I think this is a very logical solution, microgrids based on natural gas or dual fuel reciprocating engines to backup renewables and get us through long duration events.  This can be done in large scale with Wärtsilä engine based power plants and our energy storage solutions.  See

Dan Shelledy
Senior Business Development Manager
Houston, TX 

Stuart McCafferty's picture
Thank Stuart for the Post!
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