Independent Texas. On Friday I told you that ERCOT was an islanded grid, separated from the rest of the Country to avoid FERC jurisdiction. Shockingly, that was not correct but the correction will leave you shaking your head. The Blackwater DC Tie is a relatively small interconnect between ERCOT and SPP, in the eastern interconnection network. This means that supposedly, FERC could, at their discretion, argue jurisdiction to ERCOT but the counterpoint is that ERCOT could sever that tie and reestablish solitary confinement. So did this interconnection help during the winter storm? No, because the system at Blackwater was undergoing planned maintenance.
Unhedged Hedges. For the third time in this century, lack of winterization has caused generation to find itself on the wrong side of settlement trades. Building cheap in Texas is no longer the best business process, we’ll see if asset owners react differently going forward. Over the next few weeks and months, we will see hundreds of millions in losses announced as well as bankruptcies (see below about consumer impact). RWE renewables is first to identify a $300-$600million loss for its wind portfolio, of which they were part owner (meaning asset losses were even higher). While generation owners have their pricing hedged with off takers, they also have a production requirement to meet those deliveries. Since the turbines were frozen and unable to operate, RWE needed to go to the market at rates as high as $9,000/MWh to meet their contractual obligation. In short, being hedged caused a loss far exceeding any upside for being hedged in the first place since the hedge simply shift the risk from pricing to fuel availability layered on market rates. If you buy at $9/kWh and sell for $0.02/kWh, you’re underwater by 450X. If this happened for 3 days, the next 5 years will go to make up the error.
Understanding Texas Subsidies. Conservative leaders and primetime programming on Fox News are arguing that wind subsidies ruined the Texas grid. For the sake of the argument, we will ignore the fact that the lack of winterization caused the issue (regardless of fuel source), and look at where this is coming from. The root cause of the argument is that a transmission project called the Competitive Renewable Energy Zone (CREZ) was paid for by ratepayers and largely benefitted wind development. Since this cost was not paid by developers directly politicians are calling this a subsidy. CREZ caused wholesale power prices to drop by quite a bit, has plenty of gas generation connected to it and wasn’t paid by taxpayers. Here’s a 2014 review of the project by ERCOT in case you want to dunk on Tucker Carlson on Twitter.
The Fracked Methane Spike. Supply and demand will meet price gouging when it comes to Texas. At the peak energy crisis, natural gas prices went through the roof in Texas and abroad, something I wrote about last week. None other than the Dallas Cowboys’ owner Jerry Jones was the big winner and may find his CEO in front of a Senate committee. His words may already speak for themselves, see here.
Impact To Consumers. One of the first questions I asked on Twitter was whether consumers had exposure to variable pricing of if the retailers would suffer the negative spread. Most consumers are on fixed pricing agreements which means retailers lose the difference between contract and grid price. But some consumers, probably with some level of naïveté, signed variable cost agreements which match the market cost of electricity. One such provider, Griddy, has told its 29,000 customers to find an alternative source given their expectation that consumers will not be paying the $9/kWh that it cost them to heat their home.
POLR Vortex. Provider of last resort, POLR, is the customer acquisition following the winter event. Retailers will be suffering losses, some will not be able to survive from, and the big utilities like TXU, NRG and Reliant are fighting to get their share of POLR allocation which means consumers without retailers get assigned to them. There’s a certain stickiness to consumers so a $0 customer acquisition cost is business positive.
Solar’s Role. Solar was largely left out of the headlines. With only 6.5GW of capacity on the grid, solar generated nearly 3GW most of the time. Some capacity was offline due to grid shutoffs and some plants suffered from snowfall. We have not heard from asset owners about potential hedge issues at this point or how well storage owners were able to benefit during the peak pricing events.
Goodbye MOPR. FERC ends the pricing subsidy and PJM will be able to have the next capacity auction with more market driven bids.
Save California Net Metering. Sign this petition if you want to see the largest solar market continue thriving.
- New York Times: How Texas’ Drive for Energy Independence Set It Up for Disaster
- Wind Power Monthly: Texas blackouts to hit RWE Renewables profits
- Axios: Sen. Tina Smith calls for probe into natural gas price hikes during winter storms
- ABC: Texas energy provider to customers: Please leave us
- Utility Dive: FERC ‘finally’ ends PJM MOPR proceeding, paving way for grid operator’s next capacity auction
- Greentech Media: States, Cities and Corporations Come Together To Push Biden To Strengthen Climate Targets Under Paris Agreement
- Politico: Biden squeezed between promises to go green and bolster unions
- Solar Power World: New Solar Access Act aims to implement automated solar permitting in most California cities
Opinion
Best, Yann