Freezing winter weather recently caused power shortages in Texas and left millions of people in the dark and without heat on the coldest days in decades.
“Regardless of their exact causes, the Texas blackouts have served as a wake-up call to diversify energy sources and boost network flexibility. This can be achieved through the increased deployment of batteries and a greater participation of demand loads in grid balancing and the wider energy markets. Businesses should look at new energy technologies as a way of increasing their operational resilience, securing supply and safeguarding against energy price volatility”, said Wayne Muncaster; VP North America at GridBeyond, the global leader in intelligent energy technology for C&I and Distributed Energy Resource Management (DERM).
On Sunday, February 14th, an unprecedented winter storm with record cold temperatures hit Texas, forcing many power plants offline and causing energy outages, which in some areas lasted for close to a week. At the peak of the crisis, more than 4.3 million people, around one third of the state’s electricity customers, were without power. The energy outages affected the state’s water services, making tap water unsuitable for drinking, or stopping the supply altogether.
In the wake of the crisis, businesses and domestic energy users who rely on a wholesale power plan, rather than a fixed-rate plan, were hit with colossal energy bills. The wholesale buyers pay a variable rate for their energy, reflecting the wholesale price per kilowatt-hour for electricity at the point of purchase.
Generally, amid normal weather conditions, wholesale prices tend to be lower than fixed-rates. However, during last month’s winter storm, the increased demand coupled with a simultaneous shortage of supply caused the prices to spike from around $50 to $9000 per megawatt-hour.
“While the exact causes of the crisis will be explored during an official inquiry into the state’s grid operator, the Electric Reliability Council of Texas (ERCOT), it is already known that generation of all types could not keep up with the increased demand and faced system failures due to freezing temperatures they are not used to operating in,” said Wayne Muncaster.
“Thermal energy sources, including coal-fired power stations, natural gas power plants, and a nuclear power plant are normally scheduled to deliver around 80% (67GW) of the grid’s winter capacity whilst renewable wind generation is expected to deliver only a fraction of the supply the state had planned for the winter.”
In 2019, ERCOT had almost 23.9GW of wind and 2.3GW of solar on the grid, compared to around 55.5GW of gas generation.
Experts at Wood Mackenzie pointed out that natural gas power stations rely on high market prices to justify their running costs, and some operators typically take their units offline in February either for maintenance or due to a lack of economic incentive to continue generation.
“About 14 GW of natural gas generation capacity was on a maintenance outage before Monday [February 15th], with even more offline for economic reasons,” said Riti Goel, a lead analyst at Wood Mackenzie. Those that were active suffered from a gas shortage in the distribution network due to frozen gas pipes and the prioritization of the supply to homes that rely on gas for heating.
Active and holistic energy strategy
Wayne Muncaster continued: “Instead of blaming any particular type of generation technology, we need to take a holistic approach and look at the whole energy system and the ways to improve its resilience. One obvious solution would be to winterize any new and existing energy assets to ensure they can operate in all weather conditions. However, this transition will undoubtfully generate significant costs for the generators, which would ultimately be passed on to end consumers.
“For many commercial and industrial (C&I) businesses, which rely on a constant energy supply from the grid, the recent blackouts have come as a wake-up call to become more active and resilient participants in the energy markets. C&I sectors that are typically the highest energy consumers, such as metal, oil & gas, glass, aggregates, food and bulk chemical, are the most affected by any price volatility.
To protect their bottom lines, businesses need to develop a holistic energy strategy and take more control of the way they operate in the energy markets, whether is it through participation in the financially incentivized grid balancing services or automated optimization of the production assets to ensure they consume energy when it is cheapest to do so.
“By installing behind-the-meter batteries on their sites, large energy consumers and those in critical power sectors can not only increase their own energy resilience, but also generate new streams of revenue from trading energy in the wholesale markets. Ultimately, openness to new technologies such as AI powered platforms that enable robotic trading, asset optimization and access to balancing services, will enable businesses to make the most of the transitioning energy market and protect them from the negative impact of market volatility.
Ancillary services & energy storage
“During the Texas blackouts, we have seen demand response providers stepping in and supporting the grid with additional flexibility. However, the real potential for C&I businesses to earn revenue from grid balancing and optimize electricity usage around periods of peak demand, is still largely untapped. Not all utilities offer access to ancillary services and the existing programs in ERCOT are limited in scope. Following the recent events, it is likely that the grid operator will start procuring greater volumes of ancillary services, providing more flexibility to the grid, diversifying energy sources, and increasing financial incentives for participating businesses.
“Another way forward is to escalate the deployment of utility-scale batteries and combine them with the increasing volumes of renewable generation resulting in the creation of a backup system which is ready to provide additional capacity within milliseconds from the network showing the first signs of insufficient supply. The presence of batteries will also make renewables more reliable by mitigating the impact of their volatility on the network.
“With the current targets of net-zero emission by 2035, the batteries and supporting advanced technologies will become the backbone of future grid resilience, leading to greater decarbonization, digitalization and decentralization of the energy network. Over the last couple of years, Texas developers have started following in California’s footsteps by investing in new large-scale energy storage projects. However, as of today, we are nowhere near what is needed to ensure sufficient backup supply to prevent blackouts like those from last week.”
“It has been a few weeks since the Texas grid operator lost control over the power network and in the wake of these events, it has become unquestionable that reforms are needed. A review of current market rules is needed to encourage greater involvement from C&I consumers in balancing services and the wider energy markets. This combined with an increased deployment of batteries is the logical next step to advance the transition to a resilient and flexible smart-grid. New solutions should be delivered through a holistic approach to the market and an openness to advanced energy technologies.”