“Rob, you certainly have the right to participate in the discussion but it is clear to me (and others) that you do not understand how the ERCOT market actually functions. Instead you spout off free market economic theories without getting down and dirty into the details of how to apply them to power systems. In the real world the devil is in the details.” (Robert Borlick, below)
“Rob, why are you shilling for the natural gas industry?” (Borlick, below)
Welcome to the political economy of electricity from the expert/planner viewpoint. Electricity is different. Its complexity requires central planning/regulation. The free market does not work. Ergo, free-market theories do not apply.
Bottom line: Experts/planners/regulators/politicians must get “down and dirty into the details of how to apply them to power systems.”
Previous posts (here and here) have chronicled my interaction with electricity planning experts in the wake of the Great Texas Power Blackout of February 2021. (There was a mild-day scare as well in mid-April, magnifying concerns about renewables in the state.) This post continues the discussion to better understand two very different views of the need for regulation/central planning in the U.S. power industry.
I conclude that the debacle was a failure of government intervention in the parts and the tragic whole; the planner view is that the private sector failed the PUCT/ERCOT model, not the other way around.
This exchange began with my comment to Michael Giberson’s post on his article, “How to Prevent Another Texas Power Failure” (Reason: April 22, 2021). I continued my argument of central-planning failure under the heavy weight of unreliables (renewables) forcing. Robert Borlick, patience thin, and of the ‘planner mentality,’ responded. Joseph Pokalsky, seconding Borlick, joins in.
Bradley: I see this (excerpt) as pretty soft (polite, easy). The Texas debacle was a central planning failure combined with Texas’s over-reliance on renewables that has compromised the economics of marginal baseload generation. A government failure in total, not a market failure.
The suite of recommendations are all regulatory this-or-that. Mandatory weatherization, new transmission interties, smarter demand-management.
This would not have happened in a true free market where reliability would not have been outsourced to experts/regulators/planners. Companies themselves, not hampered by intervention (as Mises would say), deserve to be in the reliability/planning business directly, not by government fiat. And if the ‘majors’ fail …. violating contracts or public trust … they are the entities to be held responsible.
Interpreting this experience (and more to come with more renewables), I predict, will get a lot of free market types to check their premises. Seems like everyone, right and left, is so embedded in the regulatory/planning model that a true free market is unimaginable.
Has classical liberalism experienced a ‘brownout’ when it comes to electricity analysis and policy?
Robert Borlick: I see you are at it again. You don’t know what you are talking about. Full Stop!
Bradley: And why am I unqualified to participate in the electric restructuring debate? Do you understand what a classical liberal energy policy is, including for electricity?
Simple question: has PUCT/ERCOT pricing policy hurt the economics of baseload generation relative to wind and solar? Did this indirect effect join the direct effect (lost wind/solar at the peak) to cause the greatest debacle in the history of U.S. electricity? Check your premises, one step at a time.
Check the emotions at the door.
Robert Borlick: Rob, you certainly have the right to participate in the discussion but it is clear to me (and others) that you do not understand how the ERCOT market actually functions. Instead you spout off free market economic theories without getting down and dirty into the details of how to apply them to power systems. In the real world the devil is in the details.
When I worked on restructuring the England-Wales power system back in 1989 a lot go top-notch economists on the project were humbled when they discovered how complex power systems are and how they need ancillary services to function reliably. Trading electric energy is not like trading bushels of wheat.
Also, you make hyperbolic statements like, ” …to cause the greatest debacle in the history of U.S. electricity?” Did you ever hear of the Northeast blackouts that occurred in 1965 and 2003? To be sure, the ERCOT blackout was bad but nowhere as widespread as the Northeast blackouts. Not even close.
Lastly, wind and solar had virtually no role in causing the Texas blackout. Stop beat that dead horse.
Bradley: I am correct with… “to cause the greatest debacle in the history of U.S. electricity.” Put the NE blackouts with NYC 1977 and the rest and you are still not near Texas’s February 2021 in terms of death, injury, duration, and damages. This is going to take years to resolve with the lawsuits and such, right?
More Planning … for Planning Error
Nick Kornuta: The $9000/MWh cost failed miserably to incentivize adequate preparation. Tell me again how it will work next time. The definition of insanity is doing the same thing over and over expecting a different result.
Being prepared for very rare events generally doesn’t support the necessary spending if left to a pure cost/benefit analysis. I don’t know what the solution is, but what we have now definitely isn’t it. Substantial revisions are needed.
Borlick: Not so. Cost benefit analysis (whether pure or impure) will reach the optimal solution if it is done right and includes all of the social costs and benefits.
For example, the customers that were interrupted deserve to be paid $9 for each kWh they would have consumed if they had remained connected. The REPs should be on the hook for these payments, since they unfairly benefitted from the suffering of their interrupted customers. Had those customers remained connected the REPs would have been obligated to buy energy from the ERCOT market, at $9 per kWh, to serve them.
The Texas legislature should mandate that all REP contracts contain clauses requiring such compensation.
Bradley: Your statement: “Cost benefit analysis (whether pure or impure) will reach the optimal solution if it is done right and includes all of the social costs and benefits.” is exactly what Hayek calls “the fatal conceit.”
Are you saying you-as-expert should dare try to decide for millions of ratepayers what their ‘utils’ are for this or that? Same for the supply side.
How can planners rationally decide for the market? Price planning failed miserably in Texas and will in the future too. We need to demote the experts/planners/regulators and let a true market discovery process take place.
I’d only be interested in your expert opinion if it were about an exit strategy for ERCOT to get reliability and pricing out of the political arena. Do you have advice there?
This is where things grew silent.
Then Robert Bryce posted at LinkedIn on his Real Clear Energy essay, “After the Blackouts, Follow the Wind and Solar Money–All $66 billion of It.” I responded, and off we went again with Robert Borlick (and Joseph Pokalsky) defending renewables and PUCT/ERCOT all the way.
Bradley: Another angle to this story: the experts doing studies for ERCOT, even making a living at it, are very determined to blame natural gas and not renewables for the problem. Seem to be all in the climate alarmist/forced energy transformation camp. Yet renewables blew up the PUCT/ERCOT model….
Borlick: … Investments in renewables are done to obtain cheap, clean energy, not capacity to serve the loads. Renewables need to be backed up with firm, dispatchable capacity to complement renewables’ intermittency….”
Bradley: Renewables are cheap? green? additive? nonsubsidized? Renewables actually destroyed the PUCT/ERCOT model. What an irony for a renewable defender.
Borlick: Bob, stop beating that dead horse.
Joseph Pokalsky: Groundhogs Day
Bradley: Not much of a reply. You [two] will not even answer the basic charge: renewable preferences have compromised the performance and capacity of baseload sources.
Pokalsky: Ridiculous statement, if using conventional definitions of generation performance and capacity; please explain if you can.
Bradley: [See here]
Do you need sworn testimony from natural gas firms and financiers that new capacity was discouraged by PUCT/ERCOT “casino” pricing and (artificially) reduced margins from low-to-negative wind pricing? Investment went from distorted generation into (mandatory-open-access-enabled) retailing, a contrived market that might not even exist in a true free market. It has to be Groundhog Day when you will not acknowledge something this obvious and simple.
Borlick: Rob, why are you shilling for the natural gas industry?
Bradley: Oh, this is what I am doing. What a scholar you are.
I’m ‘shilling’ for reliability and market prices, a free market in toto.
Why do you favor wind and solar that brought down PUCT/ERCOT? Why can’t you simply state that ‘yes, baseload generation has been compromised over the years by renewables’? It is not only that renewables fail when most needed, it is that renewables fail by distorting prices non-peak.
BTW, my energy policy is to remove coercion, the initiation of force. Yours is one of intervention after intervention, state and federal. I think the burden of proof is on you, and it certainly is with the mega-failure of your pre-freeze praised system.
Borlick: You are so full of yourself and so intransigent that there is no use in my even trying to reason with you. Your knowledge of power systems and economics is superficial AT BEST. Don’t bother me anymore with your nonsense arguments.
Borlick: One other comment. You said: “BTW, my energy policy is to remove coercion, the initiation of force. Yours is one of intervention after intervention, state and federal.”
Exactly WTF are you talking about? I am, and have always been, an advocate for substituting competition for regulation wherever feasible and for retail customers’ free choice, including the right to choose how much reliability each one is willing to pay for. Only and energy-only market such as ERCOT can provide that.
But I’m sure this concept will go right over your head. And I’m tired of explaining stuff to you.
Bradley: So you are saying that PUCT/ERCOT worked fine? “Only and energy-only market such as ERCOT can provide that.” No problem with reliability–and prices?
So more of the same–more renewables, more flipping the economics for reliables?
I don’t think very many people on this thread or in the real world think this is the road to go on.
Expert central planners just cannot let go of their construct–or imagine what would replace it.
And I’ll leave it here for now. But I had one more query for Robert Borlick, who stated:
I am, and have always been, an advocate for substituting competition for regulation wherever feasible and for retail customers’ free choice…
So sir, do you believe in private property rights? Why should an owner of a transmission line/network be forced by government to let uninvited or unwanted third parties use that asset?
CORRECTED AND EDITED
So much of your criticism is directed at your challenger as a “shill” for the natural gas industry. That tack of criticism cannot be leveled at me.
I worked for a government water agency in California for 20 years and formed a task force for that agency to respond to the 2001 California Energy Crisis that preceded the so-called “deregulation” of the electricity market (actually re-regulation). The cause of California’s 2001 Crisis was that the US EPA gave California until 2001 to phase out old coal burning power plants along the coastline or it would lose federal funds. California was not running out of energy in 2001, it was running out of sky (clear sky). Calling the mothballing of coal burning power plants deregulation was a misnomer. And Enron had nothing to do with that crisis but became a convenient fall guy and cover for government environmental regulation.
If as you write: “Renewables need to be backed up with firm, dispatchable capacity to complement renewables’ intermittency….”, did you then advocate pricing the full cost of nat gas peaker power plants in the price of solar and wind power, as back up for such catastrophic events? Or the enormous cost of weatherization of the grid for an event that likely occurs only about every 30 years? Where is the cost/benefit there? Where were the peaker power plants during the Texas Freeze? Non-existent.
Moreover, why are renewables even necessary in the ERCOT grid? Texas is not a Basin State like California that has smog traps (inversion layers). Texas is a Plains State that dissipates any air pollution (“the solution to pollution is dilution”). There is no need for renewables in Texas as there is in California.
And renewables in California have delivered no public health dividend because asthma and lung cancer are diseases of the human immune system not polluted air (and experts know that indoor air quality is much more a problem than outdoor). And the bug-a-boo “climate change” is an upper atmospheric issue not an issue of trapped urban air pollution.
It would have been more productive a debate if you had avoided the personal attacks and dealt with policy issues. I believe the reason that this is so is that renewable energy is a patronage political economy that justifies its existence by virtue signaling about air pollution, public health impacts and phantom climate change, which are social constructions of environmental reality.
The Great Texas Freeze of 2021 was not a crisis but a tragedy: meaning it involved circumstances that were no fault of anyone, unlike the California crises of 2001 and 2020. But if installing renewable energy in Texas had been avoided, along with mandating electric start up technology instead of hydraulic mechanisms in power plants, there may have been more power available.
California rolled its $43 billion in unpaid electricity bills and unpaid stranded assets on mothballed power plants into a bond that was paid off by water rate payers in higher pumping costs of water conveyed through the California Aqueduct to Southern California until 2012. What will Texas do?