The Great State of Texas: explaining the power crisis and what happens next

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n the days and weeks following the February power outages in Texas, fingers were pointed in all kinds of directions: those typically against renewable energy identified a state too reliant on wind farms, while others blamed a lack of oversight of the energy markets.

The simple fact is that Texas was hit by three harsh winter storms in 10 days, the state’s power infrastructure was not adequately prepared for such a vicious cold snap, and more than 4.5 million homes and businesses were left without power for several days.

Damages from the power blackouts are estimated to have cost around $195bn, far exceeding the $125bn in damage wrought by Hurricane Harvey in 2017, making it the costliest disaster in Texan history.

Meanwhile, natural gas suppliers, pipeline companies, and commodity traders have profited heavily from the crisis. Demand for heat meant wholesale power costs rose 400 times the normal amount, and natural gas prices were propelled to record highs.

More than 100 people died during the blackouts, and the state itself was around four minutes from a total grid collapse that would have meant tens of thousands of people at risk of freezing to death. That such a cataclysm could arrive in Texas naturally has political leaders worldwide worried.

If the great state of Texas can be brought to its knees by adverse weather, what does that mean for developing countries with less advanced energy grids?

Temperatures in Dallas plummeted to -2°F. The city of Austin remained below freezing for six days, at a time when temperatures would normally be expected to average in the mid-50s. The temperature in Brownsville, a city at Texas’ southernmost point and adjacent to the border with Mexico, did not rise above freezing for almost 48 hours after the cold hit.

For the first time in its history, every county in Texas was under a winter storm warning at the same time.

In the early hours of Monday 15 February, ERCOT – the Electric Reliability Council of Texas, which operates the Texan power grid – initiated rolling outages across much of the state. Extreme cold weather had arrived in the state days before, which pushed demand for power to record levels.

That extreme cold had also caused the state’s power plants to shut down as equipment froze or fuel ran out. A gas heating demand boom would have been difficult to deal with anyway, even without the cold weather interrupting gas production and pipeline services.

All of the state’s options for power generation – wind, natural gas, coal, and nuclear – failed.

Texas is the only US state that runs its own power grid without federal oversight, and the state does not require power equipment to be winterised to protect against prolonged periods of extreme cold.

While this has been mulled over before – and probably seems common sense following this year’s crisis – cost has always been a prohibiting factor. Texas last felt a bout of extreme cold a decade ago, so effective winterisation of the power grid had been seen as an unjustified major expense to protect against something so rare.

The astronomical rise in the Lone Star State’s wholesale power costs forced utilities bills into the thousands of dollars – consumers who could keep their lights on through the crisis were hit with bills in the region of $15,000 for the luxury.

Eye-watering and savings-destroying energy bills were, obviously, not well received. Lisa Khoury, a resident of Chambers County in Houston, Texas, filed a class-action lawsuit against electricity provider Griddy Energy after she was charged $9,546 for power covering 19 days in February. The bill was 40 times higher than her usual range, and Griddy was accused of overcharging its customers by thousands of dollars in a time of crisis.

In March, Griddy became the third Texas energy provider to file for bankruptcy in the wake of the winter storms, and Texas Attorney General Ken Paxton confirmed that over $29m in unpaid bills would be forgiven as part of the company’s bankruptcy plan.

Customers like Khoury fell victim to what had been a relatively new offering in the Texan energy market. Where most consumers in the state are on fixed-rate plans, paying a set bill for the electricity they use, Griddy and other providers offer variable plans wherein consumers pay wholesale prices.

These can be enticing in times of low demand, when low costs are reflected directly in consumers’ bills, but in periods of high demand, prices can skyrocket.

While most energy companies sought to keep quiet as the crisis sent prices to record highs, for fear of looking to be profiting from hardship, some executives let the mask slip.

“This week is like hitting the jackpot with some of these incredible prices,” Comstock Resources president and CFO Roland Burns reportedly said in an investor call, attracting widespread criticism for saying the quiet part out loud.

In terms of market winners, the picture has become clearer as quarterly earnings reports trickled out in the months following the power outages.

Gas supplier Energy Transfer said in its quarterly results that it expects gains totalling around $2.4bn stemming from the one-time impact of the Texas storms. The company was able to sell off what it had in storage during the period when prices peaked.

Some Wall Street firms that had bet big on the power industry picked up millions when Texas went dark. According to Bloomberg, traders at Goldman Sachs could earn around $100m in profit from the crisis.

Bank of America was also reported as having made hundreds of millions of dollars from trades related to the Texan energy market, though the bank said any revenue would be offset by losses and reduced investments from Bank of America’s other business investments in Texas. Reuters reported that Bank of America is owed nearly $480m by Brazos Electric Power Cooperative, which filed for bankruptcy following the outages.

Texas produces more power than any other US state. That it could go dark when confronted by Mother Nature has generated some unease. Climate change is making extreme weather events more common, and severe enough to push critical infrastructure to its limits as happened in Texas.

As countries around the world wrestle with updating or outright transforming their supply network for energy, the incident in Texas has sent alarm bells ringing. The Institute for Energy Economics and Financial Analysis said that the crisis in Texas has implications for Bangladesh, which is considering increasing its reliance on LNG imports as an alternative to its pipeline of coal-fired projects.

The Institute warned that the fallout of the Covid-19 pandemic and the events in Texas have exacerbated risks inherent in LNG imports. For Bangladesh, which already faces high electricity subsidies and potential price increases, these risks could be too great as a reliance on LNG imports would come at the cost of domestic energy security.

Incidents like the one in Texas show how energy security is dependent not just on capacity, but also on infrastructure. The Texan power grid is isolated from surrounding networks, which limited the ability to import power from nearby markets. It could promote a rethink of future energy infrastructure, particularly in areas of the world that are beholden to severe weather events.

Battery storage systems are obvious contenders for storing excess power when it can be generated, and pumping that power into the grid in times of higher demand or lower generation capability.

While incidents like Texas in February may be out of scope for most current battery systems – preventing the outages that put 4.5 million in the cold and dark would have required a prohibitively large, and prohibitively expensive, battery backup – smaller grids could potentially benefit from the installation of battery storage systems to cope with at least part of a demand spike.

The other potential proposition is microgrids – smaller networks that are connected to the larger power grid but capable of operating independently.

When the regional grid encounters trouble, the microgrid can disconnect and allow local power provision to continue while protecting the community or area from effects playing out on the larger network. As the regional grid returns to a stable state, the microgrid can reconnect and contribute to the recovery.

Microgrids have been successfully employed in remote areas to power industrial projects, or provide renewable power to conservation areas. They could be particularly useful to businesses or industrial areas which require energy stability, and could offset some of the reduction in economic output caused by power outages.