“You may be right. I have stated earlier that the ERCOT market’s reliance on scarcity pricing did not foresee an environment with high penetration of zero-marginal cost resources. Back in 2005 I generically simulated an energy-only market to demonstrate how scarcity pricing would work. I never anticipated the mass introduction of renewables at that time.”

— Robert Borlick, electricity expert (below)

The once-proud, sturdy Texas electric grid is under severe stress–yet again.

Growing demand (electricity is life!), hot (almost) summer weather, and disappearing renewables (wind in the day, solar at night) have exposed a wounded grid. The wounds are evident in prematurely retired natural gas and coal generation capacity, and a lack of new capacity. Why? Renewable energy has severely diminished incentives that would have prevailed without (government-enabled) wind and solar capacity.

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Robert Borlick is a prominent name in the ISO/RTO planning field and an expert on Texas’s PUCT/ERCOT operation. The two of us have been at it for a few months now on social media:

The latest exchange below, occurring after another Texas emergency, was a ‘thaw’ of sorts in our exchanges. It is not a question of ‘who is right’ as much as it is trying to emphasize the subtle, the indirect, and the unseen side of the renewables taking over the grid.

To use an term of environmentalists, there are “limits to growth” when it comes to renewables.

Bradley: Ditto … years of bad price signals/incentives for reliables has consequences. Atlas Shrugged.

Borlick: That’s a silly statement. The generators have a strong incentive to have their plants up for the summer season because that’s when prices are highest and the earn most of their profits. Stop beating that dead horse.

Bradley: But how do you get financing for a new plant based on a casino scenario? I have quotations to that effect from the Houston Chronicle.

What about natural gas and coal capacity that was retired because wind and solar were cheaper on a marginal cost basis?

Fact: renewables have taken over the market from reliables where reliables have no bench, to use a baseball analogy.

I don’t know how much longer you can blame natural gas for what renewable energy did. Natural gas needs maintenance, after all, for running so hard because of renewable no-shows.

In short, incentives matter.

Borlick: [in response to another comment] Gee, [energy ISO markets] have worked quite well for 20 years. What is “ long-term?”

Bradley: Long-term, I’d say, is here.

You can live or die by the spot price. And predictably, politics enters. Also, can’t disconnect customers in the new Texas law.

It took renewables (indirect effect, not only direct) 20 years to ruin the Texas market.

And I’d say the several tens of billions of dollars in Blackout rates cancel out the gains for retail competition.

Sad, but predictable. Was predicted.

Borlick: The blackout was not caused by renewables; it was caused by a lack of weatherization of fossil generator and natural gas assets. It is well known that renewables are intermittent and have to be backed up by firm capacity. They were – except that those backup generators couldn’t perform when needed. It is not that they didn’t exist.

Bradley: They did not perform because some did not have power (SNAFU from a disjointed industry, a regulatory issue), and some did not weatherize because it was a cost that could be skipped because of low margins from MC renewable pricing. (And winter were getting warmer from CO2, right??)

Please consider that the indirect effects of renewables are as or more important than the direct effects.

Without renewables, the ‘reliables’ capacity would be much, much greater–and the capacity would have stronger margins to perform.

Incentives matter.

Borlick: Really? Have you modeled this scenario? Have you seen any analyses by reputable sources concluding this?

Bob, you can’t just wave your arms in the air. you have to examine the specific interactions.

When generators earn less during low energy price hours they make it up through scarcity pricing in the hours when capacity becomes short. This suggests that as more renewables enter the market and further depress energy prices the incidents of operating reserve shortages and price spikes will increase.

Bradley: I agree. We need a formal study of what a small-to-no renewable generation profile would have looked like for Texas, producing a range of additional thermal capacity, baseload and peaking.

But where there is smoke, there is fire. And Texas is ablaze in a way that is is unprecedented in the history of the electric industry.

Short of a formal study, we have lots of anecdotal evidence of industry decision-makers saying that the incentives were wrong for reliables. And with lawsuits, we will get more evidence …

Will a fair study be done? Not now–it is too politically incorrect. Maybe it will emerge in the lawsuits–even dueling studies. But in time, I predict it will become so patently obvious that it will be less politically incorrect and be done.

Borlick: You may be right

I have stated earlier that the ERCOT market’s reliance on scarcity pricing did not foresee an environment with high penetration of zero-marginal cost resources. Back in 2005 I generically simulated an energy-only market to demonstrate how scarcity pricing would work. I never anticipated the mass introduction of renewables at that time.

The introduction of a substantial amount of price responsive demand would go far to relieve the problem but I am not sure that it would ultimately solve it.

Bradley: This is a very big point. I believe that it will be renewables that brings down the PUCT/ERCOT regime.

I am very critical of the current setup, but I will admit that sans renewables, the model is functional and would not be under such attack as it is today.

The post Renewables, renewables … a Texas-sized Truth Creeping In appeared first on Master Resource.

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June 16, 2021 By Robert Bradley Jr.