What you write, "The market in power should only exist to optimise" well, that is exactly what ERCOT does.
As for the disaster last week, that was a energy system failure as Texas regulations did not require the natural gas infrastructure to be winterized. Climate change creates more extreme weather events (in all directions but on average warmer) so polar air meant there wasn't enough methane ('natural gas') to power the turbines and heat.
So the issue is the winterization standard in the natural gas infrastructure, but nothing about the structure of the electrical market.
Certainly we need stronger resiliency standards! Events people once thought occurred "1-in-100 years" are actually like "1-in-5 years" in their frequency. And this will only get worse. But that's not a market structure issue it's a standards issue.
Externalities are, in my opinion, one of the primary reasons for market failure.
Free markets often fail to adopt low cost protections to tail events. E.g. the free market didn't get us 100% of new cars having seatbelts and airbags, government requirements did. And those standards were fought by the car manufacturers.
My point is we need regulations to mandate our energy system to be resilient to outlier events (heat/cold/flooding/high wind etc.) and that's a government function separate from the free market structure of ERCOT and actually upstream of the market ERCOT creates.
Said differently, I don't want people to critique ERCOTs market structure (a huge success) when the real issue is the government resiliency regulations in Texas (a huge failure).
Especially when they can foist off the costs of black swan events onto their customers, investors, insurance, and/or the government. In the mean time, they will optimize for profit in the average case.
There are certainly valid criticisms of government operated public utilities, but in places I've lived under their umbrellas there weren't any life-threatening fiascos due to under-investment in expert-recommended tail risk mitigations. Maybe the operating cost of power / water was more than elsewhere, but I didn't notice (or have the ability to shop around).
A market approach may be to let utility customers buy service with a distribution of costs including claw-backs if there is a utility failure. Such a contract may incentivize utilities to install whole-house UPSs for customers who have a "$500 per hour of downtime" service contract. One can imagine the government mandating that in exchange for the last-mile monopoly and access to customers you must offer a full range of SLAs (ranging from a griddy-like "you pay for wholesale price + vig" to "you pay more but have a fixed cost but may have service interruptions" to "you pay substantially more but get clawbacks if the utility fails to meet delivery SLAs".
Likely over the next decade we'll see a continued 3rd worldization of more public goods such that those who are wealthy can just buy a powerwall and those who aren't will freeze / boil every 8-15 years.
A less markety approach is to operate the utilities as a quasi-government (IE not-profit seeking) organization with clear goals and governance; such things have worked in the past and also failed in the past and lots of fair-weather zealots will complain that it is government overreach.
There is every reason to predict that we will continue to send the cost of failure to the government/taxpayers and send profits (plus what should be normal infrastructure upkeep) of normal operation to whoever is well enough connected to operate the utility.
Which company is going to take a hit to their profits each quarter so they can prepare properly? The companies who don't will be more competitive and successful right up until a freak event actually occurs. And if that happens, the absolute worst case is the your under prepared company goes under. Unlimited upsides and very limited downsides.
No individual company will take the profit hit without a regulation forcing all the actors to do it.
Not to make light of the events in Texas - it sounds scary and they need to be prepared for next time. But the answer isn't automatically "they should have had a gold plated the grid!". The answer might be "they should be have been prepared for a few days without power in extreme conditions".
Every new 9 gets added to 99.9...% reliability figure costs a lot more than the 9 before. At some point, it is more effective for rare events to be handled on a case-by-case basis.
The market based solution is to add a very large fine for blackouts on a per customer bases. Grid operators can still select how many actual 9’s they want, but the externalities for doing so are priced in.
Your solution will cause power prices to go up. I'm sure a lot of consumers would be happy with that trade, but why should the ones who are unhappy with it be dragged along for the ride? There is no need to force the grid to provide reliable power to people who won't pay for it.
Are you saying that the rest of the US does not have a power market with appropriate regulations? Because as far as I can tell, this crises could have been completely avoided if we didn't have our own isolated grid.
https://www.nytimes.com/2021/02/21/us/texas-electricity-erco...
> One example of how Texas has gone it alone is its refusal to enforce a “reserve margin” of extra power available above expected demand, unlike all other power systems around North America. With no mandate, there is little incentive to invest in precautions for events, such as a Southern snowstorm, that are rare.
https://en.wikipedia.org/wiki/Deregulation_of_the_Texas_elec...
Give it up.
In practice, there is nothing your typical free-market evangelist likes better than a government-subsidized monopoly, but preferably without any pesky regulations.
But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market.
In this case, it probably would make sense for there to be a penalty that providers had to pay if they failed to deliver service after it was committed.
My understanding is that the people who put the market together expected that the huge rate increase which would accompany an unusual storm or other peak demand event was expected to be sufficient incentive for providers to harden their equipment so that it would be able to cash in on those peak rates.
This event showed that the incentive is not enough for events that are extremely rare. It also showed that a lot of the supply infrastructure to the gas plants failed, and hardening that infrastructure is really up to the producers who aren’t directly part of the energy market.
So regulation to increase preparedness standards for gas plants supply infrastructure might make sense. But it may be possible to accomplish the same thing more efficiently via fines and penalties for market participants who go off-line during severe weather.
My point is simply: the market itself isn’t really the problem, it’s creating the right set of incentives and regulations around that market.
One last thought: living in Austin and having lived through this whole ordeal (still living it), I can’t say that I would necessarily want to pay twice as much for energy every single month to avoid one crappy week per decade. I’m thinking that I could probably get myself a backup heat and power source, and do some winterization on my own house that would be more valuable to me than paying twice as much for “the grid” to be upgraded to handle events of this rarity. I admit, we don’t know if these will become significantly more frequent due to changing climate, and that makes the decision more difficult, but I don’t see it as flat out wrong that a significant natural disaster damaged the power system, nor do I think having an “invulnerable power grid” is necessarily a realistic or achievable goal.
the big players in a market are the ones who "correct the rules of the market", or in other words regulatory capture. so go ahead and identify bad outcomes and solve the problem with new regulation proposals until you're blue in the face, without power it's just people posting online. as long as actual regulatory power is concentrated in a few people, the regulatory capture is easy, and any discussion about it is a pastime.
These aren’t externalities - is there an economics name for this? I’m sure it’s been noticed before.
There would be tons of stockpiles if businesses could appropriately upcharge when there was mass panic buying. Instead we stupidly lock prices, which wipes out most of the point of paying extra storage costs compared to a just in time competitor.
The problem is we’ve as a society don’t like when prices go up with demand so we’ve crippled markets in their ability to deal with these types of events.
People also find the idea that only the rich can afford to have heat so that the pipes in their walls don’t burst distasteful.
AFAIK the price was capped.
In your other post you say this is a once in a century event. It really isn’t. This is the 3rd time since 1989 that Texas has had outages due to insufficient winter prep. It’s more like a once in 10 years event.
The technology isn't there. The real solution would have been to cut demand to non essential uses.
This makes no sense. Which market is it you think can be cornered here? Someone buying up all of the natural gas in the world? All of the generators? What?
The thing about market prices is any time someone tries to corner a market and drive up prices, it incentivizes more sellers to enter the market.
If you’re talking about small periods of time, like cornering it for a week, that’s not really easy considering futures traded against this market would smooth the price like they do for every other commodity.
Same thing applies to oil, oranges, natural gas itself, coal, refined copper, etc.
There is nothing special about electricity other than the fact that people feel entitled to have it at all times and cheaply despite the fact that generation costs vary widely.
> There are far better solutions to this problem and they all involve more and not less regulation.
The California power system is a bastion of regulated electricity and it’s an unmitigated disaster. The prices and reliability are worse than the one in Texas. You just don’t notice because the fallout (other than burning down half of the state) doesn’t freeze people to death.
Furthermore, I'm not entirely convinced that removing price gouging laws would really prevent these sort of events. Capitalism has a tendency to optimize for the short term, and to select for firms that are perfectly optimized for the current environment, however unrepresentative that may be. Sure, counterculture firms exist, but there's rarely enough of them to make a big dent, and the markets often remain irrational longer than they can remain solvent.
The more regular disasters seem to be dealt with in markets. Insurance companies will have requirements to reimbursement, some companies will stockpile goods, multi-region firms will have DR plans etc. Alternatively governments regulations can require preventative measures and have stockpiles in place. In practice both happen to varying degrees of success. Price gouging allows for more inter-region support on a for-profit basis, but probably also disincents some charitable actions. On net we probably should allow "entrepreneurial gouging" (like a guy buying a water truck in a non-disaster area, driving it to a disaster area and charging high prices) It might be distasteful, but if it is providing net-benefit of otherwise unattainable resources that is still better. But companies organizing and planning around this, seems much more sinister. Like the water company charging more for potable water, rather than spending their time and effort fixing the system for everyone. That type of thing is probably better prohibited and regulated.
But the more rare events, nobody seems to handle well. Governments and private enterprises alike tend to only prepare for the last crisis. I'm not sure there is a government vs private comparison, so much as a human failure. I suspect good government regulation is going to be better, because it can sustain longer-term initiatives, but getting the policy to be "good" and not corrupted by grift is difficult, especially with out the feedback loop of reality.
There are two main problems, a) not all transactions are captured appropriately, b) we fuck with the system from a top down perspective so much as to completely undermine the premise of the low level optimisation. Oftentimes it's in relation to (a) that we do (b), in (b) we should be aiming to provide recompense to the side of the hidden transaction via the government; unfortunately the government oversteps here and tries to optimise the system themselves.
I don’t think markets are the right tool for electricity generation transmission and distribution - too much coordination is required between the different functions, central planning optimizes the outcomes, and the lead times are so long on significant projects that a high $/MWh for a week in 2021 isn’t going to result in a new nuclear plant.
There are natural monopolies in distribution and maybe transmission as well.
100% regulated even if there are private players is the way.
This isn't a free-market situation because the state has gone to great lengths to keep this power system isolated.
This. Amongst other reasons (market distortions, gaming, profit incentives which misalign to the actual role of the markets target service)
The demand pricing thing, is entirely sensible inside the construct of market for energy. But, the system itself demands both load shedding and load returning and has transmission system dependencies. Price driven load shedding can (if understand it correctly) drive more things off-line when you need to keep the, online.
It's cascading failure stuff. But, not everyone's bidding model is tuned to optimise the overall goal of delivering power.
Also, I've noticed a HUGE drop in that term from the various GOP politicians that used to parrot that daily back in the 80s/90s). That leads me to consider their monetary overlords (I'm not suggesting the other side doesn't have them, just that the GOP is a bit more eager to directly funnel their sponsor messages) DON'T want free markets, because they all have won free markets.
Which is really a bad state of affairs.
I've also realized that money in politics is way up in the same period, and regulation to allow more money into politics has risen at the same time. Monopolies get more ROI on lobbying to help control their monopoly market positions, and keep antitrust at bay.
It's tough because free markets result in predatory pricing in times like this. Heavy regulation (especially these days, see above with money in politics) is highly resistant to change and not necessarily reflective of the common good or even "reality" or even physical laws.
Anyway, Texas is modern america: a rapidly failing government, and a rapidly failing economic system, all being undermined by steady shadowy corruption that doesn't become apparent until a sudden external stressor appears.
That is complicated. How do you validate costly infrastructure changes that are only testable or necessary once about every 10 to 20 years? Proving winterization for Canada or Wisconsin weather is challenging if you rarely have Canadian weather extremes.
E.g. in the way that you might fire drill recovery from a nuclear reactor instability without first melting part of the core.
Or how you might test a martian lunar rover before sending it off to Mars.
Even if modelling the entire system wasn’t possible with sufficient fidelity, why couldn’t you replicate the system in a geographic environment with the requisite conditions?
Straw man.
The utilities don't have to pay for the deaths caused by not providing power, or charging so much they might as well not be providing it.
But Texas has a government and it _hadn't_ mandated winterization. So it doesn't seem to have done better than the market in practice.
The low cost of delivery is irrelevant if there is a strong chance that I’ll freeze to death because my service provider tries to be efficient and profitable instead of trying to be 100% online.
I understand the desire to avoid waste and inefficiency, but free market approaches tend to ignore the human factors and prioritise the financial. That’s not the correct.
Is that difference more then the human lives lost, property destroyed and time wasted during the last few days?
As unintuitive as it sounds, global warming can lead to colder temperatures. It is up to people who disagree with this theory, not its proponents, to prove their case.
[0] https://www.ucsusa.org/resources/does-cold-weather-disprove-...
[1] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4455715/
[2] https://www.tandfonline.com/doi/pdf/10.3402/tellusa.v68.3233... [pdf]
This article from January talks about SSG and how it will affect the polar vortex in North America. (It's paywalled so using the google URL)
https://www.google.com/amp/s/api.nationalgeographic.com/dist...
" The polar vortex is coming—and raising the odds for intense winter weather In the stratosphere over Siberia, temperatures recently jumped nearly 100 degrees Fahrenheit, shoving the polar vortex off its North Pole perch."
This article is very good at talking about what we know from SSG. It has nothing to do with carbon.
https://eos.org/features/how-sudden-stratospheric-warming-af...
You have to be trolling. I just read those articles you sent me and they agree with what I am saying. Carbon causes slow and gradual warming but their are still natural cycles that 'cause the snow that skepics get so worked up about'.
I said co2 does not cause cooling. Nothing you provided even mentioned that. The only thing was from the first article 'scientists are looking into it' related to co2 causing cooling.
Here’s a report from the American Petroleum Institute from 1980 that correctly projected the economic impact and timing of current extreme weather events.
https://mk0insideclimats3pe4.kinstacdn.com/wp-content/upload...
In some other comments you say the science is still an open question.
The projections in this report have been refined and confirmed repeatedly by dozens (if not hundreds) of independent research groups for the last 40 years.
At this point, I cannot imagine more definitive evidence that the science is settled.
The article you provided spoke nothing of extreme weather. It only spoke of average temperature rise.
Temperature rise is not in dispute.
I like the more energy in the atmosphere theory, this would mean events like the suns poles flipping last year or solar events causing ionisation of the poles would also have the same affect increasing energy. Or even that magnetosphere of the earth has decreased by 6%. Which blocks cosmic rays and solar storms. Leading to more clouds being seeded.
It is not proven co2 causes extreme cold weather. It's a hypothesis.
Note that it is from January 10th.
I feel the burden of proof is in the new theory, rather than - here is a hypothesis, prove its wrong.
It's pretty clear in the small scale studies co2 concentration affects temperature in the direction or warming in the long term and the short term affect of cooling because less energy makes it to the surface. (Similar to clouds or smog/ smoke blocking light)
But a causing extreme cold weather events..
That's absolutely not true, and I've never even heard climate change skeptics argue that.
Aerosols are human emitions, carbon heavy pollution being a order of magnitude bigger than the others. The carbon heavy aerosols turn into co2.
When I was in China I experienced this first hand , it was super hot summer weather very very high pollution. Over night their was freak rain the must of cleared the air because it was the bluest sky's I have ever seen. This tropical weather suddenly because the coldest I have ever been. The pollution acted like a blanket trapping the warmth. With that blanket gone, I had to rush to the store and buy a large winter jacket.
I reread your comment and we may be disagreeing on terms.
[Edit] removed an article
I suspect we're strongly agreeing. My point is that Texas didn't assume the 'weather' would ever be bad. So when it got cold they ran out of natural gas to run their electricity system.
The reason I bring up methane is that's the raw fuel they need to power their generators. And my proposed solution is to require the energy infrastructure (here the natural gas infrastructure, which is required to power the electricity infrastructure) to be designed to handle bad weather. As you said 'weather' means in gets both hot and cold.
I just get bothered when see co2 makes things cold, its almost absurdist joke ie the one thing to nullify a hypothesis is now incorporated into the hypothesis to strength the argument.
I don't know anything about Texans, I don't even live in America but American politics trickle down
There's a huge difference between describing average temperatures (what people describe as 'global warming') and describing the temperatures on any specific day.
Previously, a strong jet stream air current trapped cold polar air far north of Texas (which is say 30' North latitude). As the pole's warm, the jet has become pone to weakening allowing cold polar air to move very far south e.g. 90'N to 30'N in Texas, which sits east of the rocky mountains in the US.
Effects like this are why a lot of people are using the term 'climate change' more frequently. Because an increase in CO2 means more than just an average higher surface temperature. Weather changes and instabilities will grow more common, with a bias to warmer events over all.
Think of it as the 'variance in the weather' is growing along side the mean weather (temperature) is going up.
Yes, as an American I'll agree our politics has plenty of instabilities as well.
If you don't mind can you read this article about SSG (which is what caused this weather event, noted in January)
https://eos.org/features/how-sudden-stratospheric-warming-af...
A large factor in the strength of the jet stream is the temperature differential between polar regions and lower latitudes. It's well known at this point that polar regions are warming the fastest, so there is a smaller differential, and the hypothesis goes that this can weaken the jet stream, leading to more events where the polar vortex dips down much further than normal.
This is a great article explaining that hypothesis: https://www.washingtonpost.com/opinions/2021/02/18/texas-pow... . Note the author of the article actually thinks the evidence for that hypothesis isn't very strong, but believes it's certainly possible and that its proponents are arguing in good faith.
I would like to read it
You can't simply mandate that energy prices will be a certain amount if the power plants still have to buy natural gas and other power sources from the free market. If you tried, the power plants would simply shut down when it wasn't profitable according to the legislated rate, making the problem even worse.
If you tried to legislate that power plants or energy producers must sell energy at a fixed cost no matter what it costs them to produce and they can't shut down, they have to price that risk into their long-term model. You're now paying more for the same service just to make it worth someone else's while to take the risk.
The energy market at least provides a feedback loop to large, energy-consuming businesses. Large consumers of electricity like manufacturing facilities will simply decide to shut down when energy prices are too to be profitable, and wait for the cost to go down. You don't see this as a homeowner, but there are industries that adjust their schedules around energy pricing.
You can and that is what California did[1]. It lead to large scale blackouts, the first bankruptcy of PG&E, the successful recall of California's governor Gray Davis, and brought to light Enron's crazy company culture which lead to its bankruptcy.
[1]https://en.wikipedia.org/wiki/2000%E2%80%9301_California_ele...
Didn’t Europe have a heat wave 5-10 years ago where tens of thousands died?
I’d be careful throwing stones about extreme weather if I lived in a glasshouse too.
The first change should be a federal law that all electric grids in USA are well connected so there is one big market place and Texas would be able to get electricity from other states.
https://en.wikipedia.org/wiki/Texas_Interconnection
For a reference: see how many other countries that a 3-million citizens part of Denmark is connected to: https://www.electricitymap.org/zone/DE?page=highscore&solar=... (Needs Chrome/Firefox due to WebGL).
No, unreliable power sources such as wind, solar and gas are the problem.
Except for a short outage due to a sensor failure, the four nuclear reactors have been steadily supplying electricity.
The overall availability of nuclear across the United States is >90%. It’s far more reliable than any other source of electricity.
> https://www.energy.gov/ne/articles/what-generation-capacity
To avoid such outages in the future, Texas needs to build more nuclear reactors.
No other source of energy is weather-independent, can store fuel supplies for several years on site, is emission free and extremely high capacity factors.
> Except for a short outage due to a sensor failure, the four nuclear reactors have been steadily supplying electricity.
> […] To avoid such outages in the future, Texas needs to build more nuclear reactors.
From an article I've read the other day:
> “This is a perfect example of the need for reliable energy sources like natural gas & coal,” tweeted U.S. Sen. Steve Daines, a Republican from Montana, on Tuesday.
> In reality, failures in natural gas, coal and nuclear energy systems were responsible for nearly twice as many outages as frozen wind turbines and solar panels, the Electric Reliability Council of Texas, which operates the state’s power grid, said in a press conference Tuesday.
"Texas blackouts fuel false claims about renewable energy": https://abcnews.go.com/US/wireStory/texas-blackouts-fuel-fal....
No other source of energy has the potential of devastating a region’s water supply and killing thousands with cancer after one earthquake, desigj flaw or incompetent engineer having a bad day.
It's possible no power network could have avoided some of this, but its patently obvious a regulated power utility function needs investment, and the market is not the best model to get it: its the one federal and texan politicians wanted.
A public utility model is not perfect. I argue it would have been better than this, and identified the capex required for systems resiliency before this crisis hit.
The energy market is not the solution. The energy market is the problem.