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Texas power crisis revealed flaw in market’s design

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Re: Texas power crisis revealed flaw in market’s design

#171

Post by jabl »

cool_dude85 wrote: post #122
ocschwar wrote: post #114

Earlier quoted context omitted.

Capacity payments ARE a market mechanism. It's like paying the ambulance squad for answering your call when you need medical help, and paying the ambulance squad to exist in the first place regardless of whether you call. Both services are valuable. And both of them can be paid for in a market mechanism.

>Capacity payments ARE a market mechanism. Yes, I think maybe my post wasn't clear enough. The usual justification for deregulation as in Texas, California, and other states is the supposed improved efficiency of generation assets as a result of these market mechanisms. I claim, to be fair without evidence, that the way these "efficiencies" are realized is to cut down on surplus capacity. As such, the existence of ca…

Sometime ago I read an article (I don't remember the name or authors, sorry) that argued the problem with the old pre-deregulation vertically integrated utility model wasn't that the utilities were per se inefficient, but rather a form of regulatory capture. Namely the rate of return was fixed by regulation, so the only way to get more profits was by increasing capital investments. So that was what the utilities argued for to the regulators. Combined with the various Public Utility Commissions (PUC's, the bodies that handle the regulation) were more afraid of large-scale blackouts than high prices. So the result was a lot of excess capacity, which yes, increased reliability but also costs borne by the consumers.

When the industry was deregulated, yes customers got to enjoy lower prices, but that wasn't per se due to some supposed higher efficiency of private operators, but because the incentive to overinvest had disappeared and customers were reaping the rewards of previous investments.

Now, however, the chicken is coming home to roost, so to speak, as demand growth, retirements of old plants etc. have caught up with the previous excess capacity, so there is again a need for a cycle of investments. That will need to be paid for in one way or another.

Re: Texas power crisis revealed flaw in market’s design

#172

Post by vorpalhex »

nexuist wrote: post #37
SamoyedFurFluff wrote: post #22

Earlier quoted context omitted.

But this leaves for potentially unethical situations like vulnerable populations who cannot afford batteries or winterized electricity. Im thinking someone disabled living on disability probably can’t afford premium electricity bills even if they need to maintain their lifesaving and expensive equipment yknow?

The solution is to cut off industrial and commercial sites first, which draw the most power anyways, and keep residential zoning online as much as possible. The economy can take a break for one day.

You probably don't want to cut off power suddenly to your water treatment plants, fabs (which have all kinds of dangerous chemicals), medical providers, and so on.

Re: Texas power crisis revealed flaw in market’s design

#173

Post by WillPostForFood »

spamizbad wrote: post #58
burlesona wrote: post #4

This is classic “efficiency” vs “antifragility.” There are some things that are okay to ocassionally fail, and for those it’s often good to pursue efficiency. But for something critical like electricity, the market all decided - with good financial justification - that it would be more profitable to just let the system fail occasionally than to be hardened against long-tail events. In systems engineering if we want t…

What I don’t understand about the Texas electricity market is that, despite how “free” it is, price per kwh isn’t terribly competitive compared to more tightly regulated states - having the highest average residential rates in the West South Central region: https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...

price per kwh isn’t terribly competitive compared to more tightly regulated states

Texas is half the price of residential electricity compared to California or New York. The other states in in the West South Central region are also low reg or deregulated, and have similar low prices. Texas was been a little lower a few years ago, not sure why it spiked up. There have been some coal plants taken offline, and the cost of outage last year also is affecting rates now.

Re: Texas power crisis revealed flaw in market’s design

#174

Post by vorpalhex »

8note wrote: post #158
exabrial wrote: post #115

The design flaw is premature furloughing of generation sources that can survive extreme winter weather events, without sufficient replacements. I'm not advocating to keep coal, I'm advocating for an intelligent phase-out of these sources, which just happened to be resilient against extreme winter events. The failure is lack of diversity and planning, all of the technology exists to solve this problem.

More solar and wind would have been better in this - getting away from nat gas needs to be prioritized

Both solar and wind were down. Wind turbines in Texas aren't weatherproofed either (cost) and it was generally dark and overcast. This didn't really matter since wind generation is a pretty small percentage of the grid and it was mostly gas generators (companies that produce natural gas for use in generation) that were the issue, but "more solar and wind" would have done nothing.

The correct answer seems to have been forcing the gas generators to winterize.

Re: Texas power crisis revealed flaw in market’s design

#175

Post by vorpalhex »

freeone3000 wrote: post #94
bcrl wrote: post #47

Earlier quoted context omitted.

Eastern Ontario seems to do fine handling winter temperatures of -28C to -35C every year. Cold isn't the issue driving reliability problems here, wind and ice are.

Eastern Ontario also gets wind and ice. Every single year. And yet it has electricity.

Exactly. Eastern Ontario gets wind and ice and cold EVERY SINGLE YEAR. Every one. If you don't winterize, you don't work. It is a cost.

In Texas, basically up until last year with that blackout, there was no downside to not winterizing. Why? Most of our pipes aren't even deep enough to handle a hard freeze - because we don't usually get hard freezes.

Re: Texas power crisis revealed flaw in market’s design

#176

Post by vorpalhex »

thephyber wrote: post #135
salawat wrote: post #85

Earlier quoted context omitted.

I'd advise looking into some Texas history first. Part of the isolated grid was in response to the unreliability of other actors on the National grid. Yeah. When you go independent it sucks when you set yourself up to not be helped by anyone else; but in general you at least know squarely where to place blame when it blows up in your face.

As someone who grew up in Texas, Texas history (not just of their electric grid) is crazy. The Alamo was about illegal immigrants from the USA fighting for the right to keep cotton-picking slaves in Mexican territory, then revolting when the Mexican military came to enforce the law. And it was a tactical loss for the revolution. It’s crazy that it managed to become a rallying cry.

You have over-simplified to the point of being incorrect.

The Alamo is one of many battles during the Texas revolution which primarily occurred due to the move of Mexico to a centralized power instead of a federalized one. Texas had already endured a constitutional change, increased taxes, immigration being made illegal and changes in the legality of slavery.

While Santa Anna blamed "illegal immigrants" heavily, he also was basically conscripting anyone and everyone to form his army which likely tied into his continual set of losses.

The Alamo is the first to fall when the Mexican army, coming from the heart of Mexico, re-enters Texas. During the fighting, Texas formally declared independence from Mexico. The Alamo falls. A few days later the Texan army catches up with the Mexican army and crushes them, with claims the men are shouting "Remember the Alamo".

Re: Texas power crisis revealed flaw in market’s design

#177

Post by Dma54rhs »

caf wrote: post #63

Another electricity market of similar scale that is also an energy-only market is the Australian NEM. It hasn't had an event similar to the ERCOT disaster of last winter yet, but there have been discussions about adding a capacity market mechanism.

EU energy markets are also very liberal, similar to Texas. The deregulation happened long time ago.

But states have interconnections that make it more resilient.

Re: Texas power crisis revealed flaw in market’s design

#178

Post by RhysU »

Spooky23 wrote: post #137
spamizbad wrote: post #58

Earlier quoted context omitted.

What I don’t understand about the Texas electricity market is that, despite how “free” it is, price per kwh isn’t terribly competitive compared to more tightly regulated states - having the highest average residential rates in the West South Central region: https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...

Texas is uniquely dominated by energy interests. Most of the quacking about cheapness is just noise. I have a relative who moved from an “expensive” northeast state to South Carolina. His big bitch was about taxes, but he didn’t really do the math. He saved on property taxes, but between more regressive sales tax, HOA, etc it doesn’t really compute. Most significantly, he discovered the tyranny of local government is…

They're the same tyranny, no?

Someone else claims an amount of your money that they choose to be spent as they choose and you get an 1/N vote in the matter.

You can leave whenever you sell.

Re: Texas power crisis revealed flaw in market’s design

#179

Post by jabl »

caf wrote: post #80
obblekk wrote: post #2

I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?

I've on occasion idly wondered whether modern information processing technology would enable a centrally-planned economy that worked better than the failed 20th century examples.

A couple of books on this topic:

Cockshott, Cottrell: Towards a New Socialism, brief synopsis as well as a link to the PDF version at https://en.wikipedia.org/wiki/Towards_a_New_Socialism

Phillips, Rozworski: People's Republic of Walmart, https://www.versobooks.com/books/2822-the-people-s-republic-...

Disclaimer, I've only skimmed through the first and not read the second. I'm not personally super-convinced as I think markets are in many ways a pretty good decentralized economical information sharing mechanism (in the sense of prices conveying information about scarcity etc.). That being said, there are of course numerous examples of market failure where some kind of state intervention is needed. And in some cases the market failures in question might be so severe and so hard and expensive to work around that a socialist model might in fact work better. Like health care or much of public infrastructure. But that doesn't IMHO mean that market mechanisms must be entirely abolished everywhere.

To get back on the topic of electrical grids, yes I think a mechanism of dispatching based on marginal costs is a good idea, as that means the lowest cost producers to meet the required demand are used. But also note that this is a pretty "synthetic" market, with a central planner deciding on which generators are dispatched, and customers are buying from that market rather than some kind of "natural" market where they'd go directly to the producers. And of course few end customers have their rates tied to the spot price, which sort of destroys the idea of demand response where the end users would react to high prices.

And the variability of the electricity price is only going to get more dramatic as more zero-marginal cost variable producers like wind, solar come online. In a simplified model with zero marginal cost producers and inelastic demand you'd either have a cost of zero when production is higher than demand and the administratively decided ceiling price (or infinity if such a ceiling hasn't been set) when demand is higher than production. Which doesn't really sound like a functioning market. So maybe we'll over time go towards a model where some kind of capacity market is responsible for the majority of generator income (and customer cost) and the wholesale spot market reduces in importance, mostly deciding the merit order for dispatching generators.

Re: Texas power crisis revealed flaw in market’s design

#180

Post by aaron695 »

burlesona wrote: post #4

This is classic “efficiency” vs “antifragility.” There are some things that are okay to ocassionally fail, and for those it’s often good to pursue efficiency. But for something critical like electricity, the market all decided - with good financial justification - that it would be more profitable to just let the system fail occasionally than to be hardened against long-tail events. In systems engineering if we want t…

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