Doug Sheridan writes
Texans are paying a steep price for the state's pursuit of renewable energy.
Doug Sheridan writes
Texans are paying a steep price for the state's pursuit of renewable energy. ERCOT, the state’s primary grid operator, has been using a program called Contingency Reserve Service (CRS) to cope with the challenges of integrating more wind and solar power into the system. The approach is not only expensive, but also counterproductive.
CRS is supposed to ensure that there is enough generation capacity available to meet demand, especially during peak periods. It does so by paying generators to keep some of their plants offline, ready to ramp up when needed. It also pays some customers to reduce their electricity consumption when the grid is under stress.
But a recent report by Potomac Economics, Ercot's Independent Market Monitor (IMM), reveals that CRS has been overused and misused in 2023. The report estimates Ercot’s CRS increased total generation costs by more than $12B from Jan to Nov compared to what costs should have been based on actual natural gas prices. That's an awfully expensive add-on for a system that had approximately $46B in electricity sales in 2022, roughly a third attributable to generation costs.
What did Texans get for this extra $12B? Several close calls, especially in the month of August, but no blackouts. Thank goodness for short-term favors from incumbent generators and customers willing to cut usage. Never mind that for the same amount, Ercot could have underwritten 10 GW of natural-gas peaker generation—assets that, once constructed, could reliably supply on-call power for decades.
While Ercot officials would no doubt claim the higher prices in 2023 caused by its CRS program will encourage investment in new generation on the system, any signals to build are obscured by Ercot's actively paying customers to cut their usage. This dependence on short-term action on the demand side risks discouraging new investment in long-term generation as ephemeral "demand response" efforts risk undermining confidence in any need for long-term demand for peaker generation—which takes many years to pay out.
Ercot claims it can manage a grid with high levels of wind and solar power, but the market tells a different story—prices have spiked this year, reflecting increased scarcity and volatility of supply. Meanwhile, Ercot's CRS program is a band-aid solution for a deeper problem—the mismatch between the state's growing long-term demand for reliable electricity and its increasing dependence on intermittent renewables.
Texans should brace themselves for more trouble ahead. As Ercot attempts to accomodate state politicians' and bureaucrats' renewable agenda, it will face more supply shortages and reliability risks. Next year, in the wake of conspicuously high prices in 2023, Ercot may choose to resort to rolling blackouts to keep the grid stable. As soon as 2025, it may have to employ both blackouts and higher prices.