ERCOT issued an Energy Emergency Alert Level 2 on Sept. 6, meaning there was less than 2,000 megawatts of spare capacity left on the state's grid. The warning came after ERCOT reported 10 new all-time peak demand records this summer. Last summer, it reported 11. Experts warn that the Texas energy grid will continue to perennially struggle until changes are made by the state legislature.
ERCOT attributed the shortage to extreme heat and demand, coupled with decreased output from wind and solar plants. Ed Hirs, economist and energy fellow at the University of Houston, said that, while this is partially accurate, it misses a big part of the equation.
"Wind was low, which is part of why it was so hot, and we were rolling off the solar, which is typical as the sun goes down earlier. It's not something we haven't been able to think about or begin planning for," said Hirs. "We've also had coal plants and natural gas plants break, and fewer of those have been showing up for work as we go through the summer. We've been running the legacy power plants pretty much flat-out since the end of May, and they're breaking."
Increased demand with an enduring shortage of supply caused energy prices to reach the maximum cap of $5,000 per megawatt hour during ERCOT's Level 2 alert – 100 times what consumers in California are paying for electricity. Still, Texas electricity plants, overall, are losing money. As a result, many are halting operations altogether, while there's little to no economic incentive for new ones to take their place.
"Only those generators that are actually spinning electricity into the grid get paid, so for 10 months out of the year, a large number of plants, making up around 20 percent of capacity on the grid, are making no money at all," said Hirs. "It's difficult for the owners to justify keeping them open, and as a result, they haven't been maintained and very few new plants have been built over the last 10 years."
The state's GDP increased between 2010 and 2021 from $1.25 trillion to $1.99 trillion. Meanwhile, the portfolio of natural gas, coal and nuclear power plants shrank.
Hirs said, by placing the blame for the grid's troubles on renewables, ERCOT is distracting from a major source of its recurring challenges: a shrinking number of power plants contributing to the electricity supply.
"It's really a deflection from the fact that the ERCOT grid has been designed to fail," he said.
Another problem lies in ERCOT's demand forecasting practices.
"ERCOT does all its forecasting by looking back at demand over the past ten years, rather than anticipating growth in the Texas economy," said Hirs. "Frankly, ERCOT and the Public Utility Commission don't have any credibility on this issue whatsoever."
The construction of more power plants would increase the resilience and capacity of the grid, Hirs says. For that to happen, he contends state lawmakers will need to change the rules.
"ERCOT is operating within the rules that have been given to it by the state legislature and the governor. The market needs to change, and the way generators are compensated needs to change," said Hirs. "Wall Street's not going to invest in building new power plants unless they can see a rate of return."
According to Hirs, rolling blackouts are possible if this summer's patterns continue into the coming weeks.
