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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

#81

Post by throwaway0a5e »

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.

Marginally better? Probably

Better enough that in the long term the people in charge of it don't have to resort to authoritarian measures to avoid getting shot in the hole they just dug? I'm not gonna pretend to have a good answer for that one.

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

#83

Post by Johnny555 »

Panzer04 wrote: post #59
kerblang wrote: post #11

Not very informative. Both gas & electric markets did payout MASSIVELY to those who had resources because the pricing absolutely exploded by well over 10,000%. The Brazos Electric Co-Op went to bankruptcy court (ongoing) because they ran up a multi-billion dollar bill over the course of the week because they didn't want their fucking customers to freeze to fucking death . If there's such a thing as financial rape, th…

If you don’t raise prices, many people/companies will senselessly consume excess electricity they don’t need. Thus, you get power outages instead of merely high prices. That being said, it’s not like most people have a real-time monitor of electricity prices so those that can will actually reduce consumption. Ultimately, in a constrained system, either you raise prices (and ensure availability, at expense) or fix pri…

That being said, it’s not like most people have a real-time monitor of electricity prices so those that can will actually reduce consumption.

It's worse than that, this was an extreme weather condition (temps as low as -2F/-19C) in a state where 60% of homes are heated by electricity and many of those use inefficient electrical resistance heating.

So even if residential users had real-time access to prices, they'd have to choose between paying any price or freezing. So it's not clear how elastic demand could be.

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

#84

Post by caf »

NicoJuicy wrote: post #72
Panzer04 wrote: post #59

Earlier quoted context omitted.

If you don’t raise prices, many people/companies will senselessly consume excess electricity they don’t need. Thus, you get power outages instead of merely high prices. That being said, it’s not like most people have a real-time monitor of electricity prices so those that can will actually reduce consumption. Ultimately, in a constrained system, either you raise prices (and ensure availability, at expense) or fix pri…

They obviously did both

That's exactly what the paper that the linked press release is about looks into.

In an energy-only market, the intention is that the possibility of very high spot prices when energy supply is short is supposed to create an incentive to build expensive, robust plant that can meet the demand in such a situation. If you can stay online during the disaster, you can make a profit that makes up for having overspecced your plant for the remainder of the time. It can even make sense to have a quick-starting plant with a high short-run-marginal-cost that almost never runs at all - only starting up when supply is constrained or demand is very high, to take advantage of the high prices - a "peaker" plant.

The paper is positing that this didn't work because the risks of investing in such a business plan were too high.

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

#85

Post by salawat »

xxpor wrote: post #19
ryan93 wrote: post #7

Earlier quoted context omitted.

How are you so sure that regulators would have required protection against a once in a hundred year storm? What doesnt the Democratic republic of the Congo regulate the poverty out of existence? Hindsight is 20/20

ERCOT/TX explicitly creating their own grid so they're not regulated by FERC (which covers literally the entire rest of the country) suggests that perhaps they don't have ratepayer's best interests at heart. I'd love to know if anyone's written anything about say, FERC vs ERCOT's gas pipeline winterization requirements.

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.

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

#86

Post by ezzaf »

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.

A few interesting points about the NEM that help explain why it's avoided a simple situation.

1: There are multiple price caps that set a maximum price on energy. 2: There's a commonly traded instrument that effectively acts as an insurance product for retailers against high prices. This means peaking generators get paid every quarter, even if they plants don't run at all. 3: The Australian government is spending billions building pumped hydro and gas generators to ensure supply over and above what the private sector is willing to fund.

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

#87

Post by ocschwar »

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…

A few years ago there was an incident in California where someone emptied an AK-47 into a transformer, nearly, but not quite, causing a local blackout. And I have to wonder if it was a chaos monkey from one of our security agencies forcing the issue.

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

#88

Post by caf »

ezzaf wrote: post #86
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.

A few interesting points about the NEM that help explain why it's avoided a simple situation. 1: There are multiple price caps that set a maximum price on energy. 2: There's a commonly traded instrument that effectively acts as an insurance product for retailers against high prices. This means peaking generators get paid every quarter, even if they plants don't run at all. 3: The Australian government is spending bil…

The Texas problem was persistent, insufficient supply - the extreme pricing was just a symptom of that.

Do participants in ERCOT's system not trade energy swap contracts? Why?

None of that new pumped hydro is online yet though - existing pumped hydro capacity in the NEM is minor (essentially only Tumut and Wivenhoe).

One reason that the NEM has been fairly robust might be that it is divided into regions with only moderate-capacity interconnects, such that each region is managed to be able to "stand on its own".

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

#89

Post by reincarnate0x14 »

Panzer04 wrote: post #59
kerblang wrote: post #11

Not very informative. Both gas & electric markets did payout MASSIVELY to those who had resources because the pricing absolutely exploded by well over 10,000%. The Brazos Electric Co-Op went to bankruptcy court (ongoing) because they ran up a multi-billion dollar bill over the course of the week because they didn't want their fucking customers to freeze to fucking death . If there's such a thing as financial rape, th…

If you don’t raise prices, many people/companies will senselessly consume excess electricity they don’t need. Thus, you get power outages instead of merely high prices. That being said, it’s not like most people have a real-time monitor of electricity prices so those that can will actually reduce consumption. Ultimately, in a constrained system, either you raise prices (and ensure availability, at expense) or fix pri…

This was absolutely not the problem during the 2021 winter storm. There was an absolute lack of power to be sold, at any price. Raising the spot MWH prices to 9 billion USD would have made no difference in what could be brought on-line, only how badly load serving entities were getting screwed.

Empty office buildings all over the state that were lucky enough to be on critical circuits were beaming out lights the whole time because no one wanted to be the manager that got a building service worker killed trying to navigate icy roads to turn them off. Industrial sites were still running the whole time, with the Samsung fab near Austin still running for days after the near-blackout event until the power company disconnected them after days of asking. Distribution providers could not even rotate planned circuit disconnections because ERCOT would not let them turn anything back due to how narrow the spare capacity margin was.

Meanwhile rural electric cooperatives that didn't own generation went bankrupt and every generator that could be was already up and running. Any load serving entity that didn't also own generation is now going to be amortizing the costs of that through rate increases for probably the next decade.

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

#90

Post by vel0city »

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...

This average price is a bit complicated to look at, and requires even more understanding of the Texas market.

There are essentially two types of electric customers in ERCOT areas in Texas: those in co-ops and those in open markets where you can choose your Retail Electric Provider and plan. Your physical location determines which kind of market you fall into.

In a co-op, those residents do not get to choose their power plan. Their rates are decided by the co-op, you either have electricity at that rate or you don't.

The open market allows for people to choose from many different Retail Electric Providers offering all kinds of plans. Free nights and weekends, but your rate during weekdays is sky high. Discounts below certain usage, with surcharges going over. Discounts once you use a certain amount, with surcharges if you use too little. Different rate prices for different usage amounts. 100% renewable. 0% renewable. 15% renewable. Flat monthly rate. All kinds of various contracts you can sign up for.

In that open market, I can choose plans way cheaper than that average rate. I can sign up for a plan with 100% renewable energy with an average rate of 9.8c/kWh for 2,000kWh.

https://octopusenergy.com/documents/efls/OCTOPLUS-24M-ONCOR-...

However, lots of people even in the open market just go with whatever plans they hear on the radio or TV. Any REP with a budget to have TV commercials is going to be one of the more expensive ones.

Rhythm - 11.3c/kWh @ 2,000kWh, 100% renewable

https://api.gotrhythm.com/api/pricing/offers/latest-offers-e...

TXU Energy - tons of TV ads - 12.5c/kWh

https://www.txu.com/Handlers/PDFGenerator.ashx?comProdId=ONX...

So yeah, some people just buy what they see on TV and pay through the nose. Some aren't really a part of this open market and get whatever their co-op wants to bill them. However, it can be much cheaper to shop online. I'm still on a 36mo contract for http://powertochoose.org/

If you notice in that EIA table, Texas has one of the lowest average commercial and industrial rates in the country. Commercial and industrial customers actually bother looking around at rates and aren't necessarily swayed by the slick looking guy on TV saying "free nights and weekends, 25c/kWh at noon!"

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