As Texas starts to recover from the record-breaking winter cold and subsequent rolling blackouts last week, the finger pointing started almost immediately and will go on for months. Initially, renewables were blamed as ice froze wind turbines, then natural gas and nuclear were blamed as plant outages occurred due to extreme cold. The main problem is Texas gas and power infrastructure failed due to extreme cold as most assets lack extreme temperature mitigation systems prevalent in the northern tier of the US. Additionally, 61% of Texas homes are heated with electric heat in a state that produces more natural gas than any other state in the US. The high share of electric heating added significant electric load to the power system when it was least prepared to deal with rapid increases in demand. The extent and duration of the cold as measured by temperatures in Midland, Texas made the 2021 cold snap more substantial than the February 2011 and January 2018 cold snaps by a wide margin. While more energy data will be forthcoming in coming weeks shedding more detail into system failures, today’s Energy Market Insight will look at how the Texas energy landscape has changed and how cascading outages of wind, nuclear, and natural gas sent ERCOT into the tailspin that resulted in widespread multi-day power outages.
The changing Texas energy landscape has not helped the resiliency of the Texas gas and power system to endure cold weather. As electric load has grown in Texas since 2010, gas and coal generation capacity combined has actually decreased by 2 GW while combined generation has remained flat. Increases in ERCOT gas generation have been entirely offset by declines in coal generation through 2020 as shown above. Additionally, wind is now the second largest fuel by capacity and generation in Texas. While wind and solar generation have almost tripled since 2010, this has made ERCOT more susceptible to renewable intermittency.
Changes to the Texas natural gas system since 2010 also significantly contributed to ERCOT’s system operations challenges last week. Since 2010, Texas and New Mexico Permian gross gas production has increased from 21.1 Bcf/d in January 2010 to over 31.5 Bcf/d in January 2021 prior to the cold snap. Furthermore, the investment in crude production and associated natural gas in the Permian has pushed the basin from 4.4 Bcf/d in 2010 to over 16.5 Bcf/d. Permian growth has concentrated Texas production with now more than 50% of natural gas production coming from the liquids rich basin. Most Permian natural gas and oil infrastructure are not hardened for extreme cold weather. Producers and midstream companies compare the tradeoff between the infrequency of cold events in West Texas versus the equipment cost to protect against freeze-off related outages. Typically, freeze-off events are short in duration and warm weather quickly restores normal operations. However, this week’s cold snap was much longer than a typical event and lasted for nearly 7 days. Even then, once temperatures rose above freezing, oil and gas production was quickly restored as shown by the rapid improvement in natural gas production over the weekend.
More data will be forthcoming in the next few weeks as to which Texas gas power plants had outages. As we will discuss below, thermal outages were the straw that broke the camel’s back for ERCOT. Rolling blackouts only started in ERCOT when thermal outages jumped higher due to extreme cold. But adding to ERCOT’s problems was one of the four nuclear units going offline in Texas, a 26% drop in capacity, at the peak of the cold snap on February 16 to 18th. At the same time, the wind freeze-off event and anemic solar generation due to fog, snow, ice, and cloud cover added to the problem as shown below.
If we look at announced outages in ERCOT as a time series against average daily temperatures in Midland, we can see how things went from bad to worse for ERCOT power system managers. At the end of 2020, ERCOT had a total of 104 GW of power capacity. On February 11th as temperatures started to drop and winter advisory was posted, renewable outages jumped to 13.3 GW or 53% of renewable capacity due to wind turbine icing and inclement weather impacting solar. As temperatures continued to fall until the early morning hours of February 15th, non-renewable outages jumped to 26.2 GW or 33% of capacity and renewable outages jumped to 21.6 GW or 87% of capacity. At this point, ERCOT started mandatory system power outages which lasted until February 19th when ERCOT declared the ‘grid condition’ was back to ‘normal’ as more normal temperatures returned to the system.
Many questions remain. Will E&P companies invest in glycol units to prevent freeze-offs at the wellhead in the Permian? Will thermal power plants invest in cold weather protection infrastructure to avoid a repeat of winter outages? Will wind turbines in Texas be retrofitted with de-icing equipment similar to their peers in Minnesota? Will ERCOT introduce a capacity market like PJM to pay generators to serve as a deeper reserve margin? Many questions remain to be answered. To follow further developments in the power markets, subscribe to BTU Analytics Power View.