By Chiara Lo Prete and Juan Rosellón
In February 2021, Texas experienced a 1-in-30-year cold weather event that resulted in sub-freezing temperatures well below average for over six days. The extreme cold weather led to record-high winter electricity demand and a decrease in electricity supply due to limitations in gas availability and inadequate weatherization against the adverse conditions. As demand exceeded supply in the evening of February 14-15, a drop in frequency threatened a total blackout across ERCOT, which was forced to initiate customer load-shedding. Over 200 people died during the event, with most of the deaths attributed to power outages. Widespread power interruptions also impacted critical infrastructures that depend on electricity to function, like natural gas, communication and water systems. About 29,000 residential customers who opted for electricity purchases at variable rates were exposed to extreme bill volatility caused by wholesale market price spikes. Financial consequences were devastating for these customers, and several companies that inadequately hedged price risk declared bankruptcy after the crisis subsided.
The event was followed by extensive finger-pointing, and some immediate reactions blamed competition, ERCOT’s electricity market structure and grid management, wind’s underperformance and limited interconnections with neighboring regions. As of this writing, the response in Texas has largely been to harden individual points of failure, such as power plants and critical natural gas facilities. The most significant energy-related bills passed by the Texas Legislature to date will result in a $18-billion out-of-market directive to build up to 10 gigawatts of new natural gas-fired power plants sitting in reserve; substantial changes to the governance of ERCOT and certain aspects of the ERCOT market (e.g., emergency pricing); a mandate for electricity suppliers in the state to purchase dispatchable power services as insurance; and the ban of wholesale-indexed products that include a direct pass-through of real-time prices for residential customers. These steps may address pieces of what was a highly complex failure across multiple infrastructure and regulatory systems. However, enhancing grid reliability against the threat of extreme weather will require more systems-level reforms.
This EEEP symposium examines the various factors that contributed to the 2021 Texas electricity crisis, reflects on lessons learned from the event and provides recommendations to better prepare for extreme weather events and reduce the risk of widespread, long-duration power interruptions. The symposium brings together different perspectives and balanced discussions on these topics, in line with EEEP’s aim to provide in-depth, non-technical overviews of policy analyses and conceptual questions that motivate further academic research.
Access the full text in the International Association for Energy Economics or access the pdf in the right-hand sidebar.
