The Texas Energy Crisis: Akshaya Jha on What Happened in the Lonestar State and How to Avoid Future Catastrophes
By Scott Barsotti
Heinz College professor Akshaya Jha researches energy markets and environmental policy. He gave his take on how Texas can better prepare for the impacts of extreme weather on the state’s independent energy grid.
In February, a historic cold snap that covered much of the United States caused a massive energy crisis across the state of Texas. The conditions for residents have been catalogued in harrowing photos and videos of icicles hanging from ceiling fans, bathtubs frozen solid, and extensive flooding from burst water pipes. The crisis garnered significant national attention, not only due to the unfolding humanitarian crisis, but because of the uniqueness of the regulatory environment and infrastructure in Texas that some argue left the state’s power grid vulnerable.
We spoke to Heinz College professor and energy markets expert Akshaya Jha about the crisis, and the policy solutions that can prevent it from happening again.
Heinz College: Describe for us what contributed to the crisis in Texas that left millions of people without power, heat, and in many cases water.
Akshaya Jha: Several things happened simultaneously, but understand that the crisis in Texas occurred primarily due to a shortage of natural gas to gas-fired power plants in the state. This shortage occurred for three reasons: 1) Gathering lines froze, and wells got so cold that they couldn't produce gas; 2) Delivery of natural gas used for home heating is given priority in Texas over delivery of gas used for electricity production; and 3) Gas-fired power plants in Texas have very little fuel stored on site, because gas is typically plentiful in Texas so this usually isn’t an issue.
HC: What policies would you recommend to ensure the Texas grid is more prepared for cold weather and other shocks?
AJ: The solutions would be for Texas to:
- Weatherize the gas lines and wells to make them more resilient to cold weather.
- Allow for more imports of electricity from other areas through further interconnection with other grids—most of Texas is on its own power grid.
- Incentivize gas-fired power plants to sign "firm contracts" for gas that have the same priority in delivery as gas used for home heating.
- Incentivize gas plants to store fuel on-site.
The latter three solutions would be under the purview of the Electric Reliability Council of Texas (ERCOT), a non-profit company regulated by FERC (a federal regulator). However, it’s possible that diverting gas from heating to electricity may not have been beneficial, ultimately.
The urgency of these fixes depends on how likely we think this type of extreme weather event will be moving forward. Each of the options listed above come with the benefit of increased reliability, but also carry significant costs. Of the options listed, further interconnection with other grids is likely to have the largest benefit in terms of price reductions, even absent extreme events.
HC: News reports have shown that some Texas residents received five-figure energy bills during the crisis. How did that happen?
AJ: Some Texas residents signed contracts for time-varying electricity prices, which are prices that vary by hour in order to reflect the cost of electricity production in the hour. Due to the extreme weather event, time-varying prices reflected that electricity was extremely valuable in those hours—a similar example would be when prices for Uber surge during a crisis situation. Traditionally, economists think of prices as allocating a good to those who value it most. When electricity is scarce, the conventional thinking is that prices should be very high to reflect the value of electricity. That being said, this conventional model assumes that people can allocate scarce attention to electricity prices during a crisis. In addition, many individuals, businesses and institutions do not face time-varying prices and were thus were not in a position to decide how much electricity to consume, given its high value at the time. Finally, a reliable supply of electricity is essential to many essential services, such as healthcare at hospitals; it is important to prioritize electricity access to these services.
HC: There has been a lot of commentary—including from the state’s governor—about the role of renewable energy in Texas’s power woes, and that frozen wind turbines, for example, played a major factor in the shortages. Are those bad faith arguments or is there a kernel of truth?
AJ: There is a kernel of truth there, because a percentage of the state’s power supply does come from renewables. But the bulk of the problems stemmed from lack of gas-fired electricity production.
HC: Why is it that wind power production was disrupted during this weather event in Texas when wind turbines function in other cold climates with no issue?
AJ: Similar to natural gas lines and wells, wind turbines in Texas were not weatherized. Wind turbines in other areas have been weatherized to withstand cold conditions, but extreme cold temperatures are not the expectation in Texas and that investment was not made. Again, whether this was the right choice, or whether it’s sustainable to not weatherize that infrastructure moving forward, comes down to the likelihood of future extreme weather events in Texas like the one we just saw.