Jason Isaac: ERCOT’s Phantom Reserve Margins Spell Trouble for Summertime

Texas is often held up as an example by wind advocates of the free market choosing wind. These talking points may appear to be persuasive, but there are three main problems with this logic.

  1. Wind in Texas is still driven largely by federal subsidies. These subsidies allow wind turbine operators to make money even if the price of electricity is negative.
  2. Texas families and businesses were forced to pay $7 billion to build a transmission line from the windy panhandle to the populated areas of the state, amounting to another giant subsidy.
  3. Texas came very close to blackouts last summer, and it could also be a close call for years to come.

Jason Isaac, the director of Life Powered, a project of the Texas Public Policy Foundation, wrote the article below about the situation in Texas, and how intermittent energy sources are undermining the electricity supply in the Lone Star state. This article originally appeared in the Houston Courant.

Even with the economic slowdown caused by the coronavirus, the Electric Reliability Council of Texas (ERCOT) reports Texans will need more power than ever this summer. News headlines claim wind and solar projects will help Texas meet its growing power needs. However, recent experience says Texans should be skeptical about giving credit to renewables, especially given last summer’s “emergency situations” when ERCOT asked most Texans, and forced others, to conserve electricity to avoid blackouts.

Projections of future grid capacity should be taken with a grain of salt. After all, ERCOT forecasted in 2016 that the reserve margin — the difference between available generating capacity and peak demand — would be a comfortable 19.6 percent in 2019. Instead, the margin was just 8.6 percent, with reserves dropping below 2 percent during the emergency situations.

ERCOT’s reserve forecasts are calculated based on the average contribution of each energy source during peak demand periods over the course of an entire summer. But wind generation in particular varies significantly from day to day. For example, during a single week last year, the average capacity factor for wind across Texas ranged from 63 percent on July 9 to less than 2 percent on July 13.

Wind and solar energy are intermittent, meaning their contributions to the grid plummet dramatically when the wind stops blowing or the sun stops shining. And although ERCOT clearly has no control over the weather, this challenging situation is made worse when forecasts are based on assumptions that create a false sense of security about the reliability of the grid.

The consequences of this oversight became clear in August 2019. Peak demand for the year occurred on August 12. Wind produced 31 percent of its installed capacity during the 4 p.m. peak hour. But thanks to the reliable backbone of the Texas generation fleet — natural gas, coal, and nuclear — running at full tilt, Texas avoided an electricity emergency.

It was actually the next day that an emergency situation was triggered, when wind produced much less than forecasted, maxing out at about 22 percent of its capacity during the highest peak hour. Every bit of natural gas, coal, and nuclear generation available at the time had to come online to keep the lights (and the air conditioning) on. The same situation happened again on August 15 as prices reached their highest levels of the year, when wind produced less than 12 percent of its capacity. We avoided blackouts, but just barely.

Imagine trying to manage your household finances this way. The current situation in the ERCOT grid is like assuming you always have the average of your last month’s bank account balances available when, in reality, your cash on hand varies from day to day as money comes in and goes out. I learned this early in my career in sales, where my commissions fluctuated based on the deals I was able to close. To avoid over-drafting, you need to plan your spending using your actual bank balance, not your average.

Let’s apply this idea to ERCOT’s projected reserve margins. ERCOT expects that peak demand will be 80,800 megawatts (MW) in 2024. Instead of using average capacity factors for wind and solar, let’s use the real-life numbers from that precarious August week: 12 percent for wind and 59 percent for solar. Then there would be 84,600 MW of peak generation capacity available in 2024, and the reserve margin would be just 4.9 percent — far from the 12.9 percent ERCOT forecasted.

We can’t expect to be 100 percent secure from every possible risk, but we surely want to do better than barely scraping by. With such a slim reserve margin, unplanned power plant outages or just days with little wind or sunshine could put us into a real emergency — this time with blackouts.

Policymakers, regulators, and all Texans need to wake up to the fact that these faulty reserve margin forecasts do not adequately account for the intermittent nature of wind and solar.

Two reforms might help matters. First, all power generation should be required to be dispatchable, meaning renewables must guarantee a certain amount of power before they connect to the grid so that ERCOT has a firm foundation for its reserve calculations. Second, Texas should phase out subsidies that distort markets and favor unreliable energy sources on the backs of the taxpayers to ensure that reliability is the top priority for power generation.

Either way, Texas has far too much at stake to hope for the best without preparing for the worst, especially when recent history has reminded us what most Texans know all too well: the weather doesn’t always go according to plan.