Lessons for Alberta from the Texas power blackout

This column is an opinion fromJoshua Rhodes,a research associate at the University of Texas at Austin, and Blake Shaffer,a professor at the University of Calgary.

The frigid Arctic air that gripped Alberta for much of the last two weeks has descended on the U.S. Deep South. But unlike Alberta, Texas and its surrounding regions aren't designed for this type of weather.

Buildings are designed to shed heat, not keep it in. Power systems are built to meet the extreme peaks of sweltering summer heat, not mid-winter cold.

Pushed to the brink, with record-breaking demand for this time of year coupled with power supply failures across the spectrum of fuel types, the Texas grid was forced to shut off pockets of power to millions of consumers around the state in an effort to ration available supply and avoid a catastrophic, system-wide blackout.

In short, it's an event that will be discussed for decades by electricity traders. It'sthe stuff of nightmares for power market designers and grid operators, and a dangerous situation for millions of Texans without heat.

So what happened? Who's to blame? And what lessons can Alberta take from this event?

What happened in Texas

In essence, the situation in Texas came down to classic supply and demand.

At one point, all 254 counties in the state of Texas were under winter storm warnings. These historic, state-wide, cold temperatures led to record demand for energy that drove electricity prices from their typical mid-$30s into the thousands of dollars per megawatt-hour, and natural gas from $3 to several hundred dollars per MMBtu.

When there still wasn't enough supply, the electricity grid had to initiate rotating outages that have lasted for days, leaving many Texans in the cold.

On paper, Texas had the capacity to manage this record demand. But the Texas grid is built for summer: it measures its reserve margins and resource adequacy against being able to provide electricity on hot summer afternoons when the entire state is demanding power for air conditioning.

One major takeaway from this experience is how ill-prepared Texas's infrastructure is for these extreme cold events, and how that differs from their ability to meet summer peaks.

Simply put, Texas's infrastructure doesn't invest in the type of insulation and cold weather protection that is the norm in Alberta because by and large, they rarely need it.

In the end, many natural gas wells and other infrastructure froze in Texas and surrounding regions, limiting supply in this time of high demand. Other thermal assets, such as coal and natural gas power plants, also experienced issues with frozen water intakes, and some wind capacity has been lost to icing.

This squeeze on not just one, but two, energy sectors (gas and electricity) that are closely interconnected has pushed both of them beyond what they were designed to handle, causing both to fail.

It foreshadowsthe future for Alberta.We skated through our recent cold snap with nary a suggestion of system emergency, because our fuel delivery and power infrastructure is built for those types of extremes. However,it may be a far different story when we have to grapple with temperatures in the 30 C andeven 40 C rangein summers to come.

Who's to blame?

It's only natural in the aftermath of a serious event like the Texas power outage is that people will be quick to seek and assign blame. Many are all too eager to find any excuse to reinforce their pre-existing notions about the unreliability of wind, blaming the outages on a dearth of wind power.

But answers aren't so simple, and it will take time to fully dissect this event.

What we do know is that wind performed, for the most part, roughly as expected: a small fraction of its maximum capability, but roughly in line with what the Texas system counts on for reliability purposes in the winter.

Natural gas, oft-touted for its ability to provide reliability in power grids with large shares of renewables, was beset with struggles.

Freezing temps led to shut-in production in a system not designed for these temperatures. This resulted in a lack of gas supply and soaring natural gas prices in some cases 100 times typical pricing. During the Texasoutage event, over 30,000 MW of thermal power plants, or 35 per cent of thermal power capacity, was offline.

In short, no single fuel is to blame, nor would a different market design have saved the day. Texas ended up in the proverbial perfect storm of having both an extreme demand shock and correlated supply failures at the same time.

Takeaways for Alberta

Alberta and Texas share many similarities in their power grids.

Both are historically based around fossil fuel generation, with recently growing shares of wind and solar. Both have limited electrical connections to their neighbours, leaving it largely up to themselves to manage their reliability. And both operate, uniquely in North America, under what is called an "energy-only"market paying competitive generators solely for the energy they produce.

While the rest of the continent adds a layer of capacity payments to ensure sufficient power generating capability to keep the lights on, or relies on a traditional, regulated system of utilities (over-)building to meet their customers needs, Alberta and Texas put their faith in the market, letting wholesale power prices rise to what may seem at times astronomical levels.

The idea is, by letting prices rise, demand will fall in the short term and new investment in generation will be attracted to the market in the long term, by producers keen to cash in on these rare but profitable scarcity events.

Over the years, this has worked reasonably well. On average, despite these occasional price excursions, Alberta's and Texas's power markets tend to result in lower but more volatile prices.

The events of this week will, understandably, raise questions as to whether this market design is delivering the level of reliability consumers expect.

In the end, it's a question of insurance, and consumers' willingness to pay significantly to guard against black swan events. And make no mistake, what occurred in Texas this week was a bona fide black swan event.

Three lessons

In our view, there are three key lessons Alberta (and Texas itself) can take away from this event.

First is the need for bigger interconnections with their respective neighbours. While California can supply up to half its demand from imports at times, Alberta maxes out at less than 10 per cent. Texas is even less.

Bigger interconnections with the neighbours means the ability to lean on other regions in times of need, and vice versa. Even as Texas runs out of power today, there is plenty of excess power around the continent, but no ability to get it there.

Second is the need to elicit more flexibility from the demand side. With prices reaching $10 per kWh (when the typical price is three to five cents), there are undoubtedly many people who would choose to turn some portion of the demand off if they faced those prices. The problem is, most consumers don't face these prices and thus have no incentive to do so.

Innovative rate designs that protect consumers from these extreme rate shocks, and offer the opportunity to participate in demand-reduction when the system is stressed and be rewarded for doing so, are sorely needed.

An energy-only market doesn't work without a responsive demand side of the market.

So, smart meters, lots of 'em. Modernize our meters with open-source, bi-directional communication abilities to enable demand to respond during scarcity events.

Third is a stark reminder that grids built to meet their respective seasonal peaks need to be prepared for extreme weather at all times of the year now.

For Alberta, it's a warning shot reminding us it won't be long before our winter-peaking system starts setting its annual peaks in increasingly hot summers.

We need to prepare our infrastructure for summer, not just winter, peaks.

The Texas power event is also a reminder that extreme situations occur when exceptional demand and correlated supply failures across all modalities converge.

The confluence of weaker wind, embattled natural gas, and higher demand resulted in the system going beyond its ability to cope. When planning, we need to consider the interdependencies of all these connected pieces.

One thing is certain: the events of this week will provide lessons for the electricity sector for years to come.

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