Hacker News Reader

Comment by asmithmd1 | Hacker News Reader

They may have delivered low prices, but it was at the cost of ignoring handling “black swan” events. As the ERCOT CEO said, If they had not blacked out millions of customers, grid and consumer equipment would have been destroyed - wiping out all the accumulated cost savings.

ERCOT does not pay producers for standby capacity. Just this week the New England grid completed its annual auction for capacity to be available 3 years from now. The prices they will pay are between $3-$5/MWhr. Maybe a little more than electricity in TX in 2024 (but who knows). No power plant operator is going to hit the $9,000/hr “gusher”, but it will be available and they will get paid.

View on HN

Respectfully, I don't see the issue as one of choosing to have a capacity market. There was ample excess capacity (at least 26GWs!), just no natural gas to run it as the natural gas infrastructure was frozen.

So what was the nature of the failure? Well, there was not resiliency standard that required the natural gas infrastructure to be winterized. Because this infrastructure froze, the state ran out of methane ('natural gas') to run it's massive excess capacity.

Now this isn't hard to do, Siberia, New England, and Scandinavia all have massive natural gas infrastructure that's fully winterized. But Texas never required that winterization, so they ran out of actual methane when they needed it most and then the turbines could not turn.

Said differently, the underlying issue is regulatory and 'energy system' one - having a capacity market (like PJM or New England ISO) would in no way have changed the outcome because the state would still have run out of methane.

Do you see it differently?

> Do you see it differently?

Yes. If minute-by-minute retail electricity pricing was there, then there'd be a large incentive to winterize the fuel supply, because the ones who didn't would lose out on the profits from higher electric rates from the ones who did.

Aren’t the generators already selling into a spot market that saw a multi thousand percent price increase in this demand peak, and are thus so incentivized? Providers AIUI are not responsible for any physical infrastructure, they’re selling volatility reduction by buying power from generators at spot and and sending it down publicly managed lines to customers for fixed rates.

I buy your point up thread that more responsive retail pricing would’ve reduce demand faster[1], but I think generators just failed to foresee the failure points of their systems and the potential severity of winter events despite significant incentives to do so.

Since the spot price hit its statutory cap, you might argue that the limit on potential windfall profits rendered winterization ROÍ negative - which might be true but if the only way to keep the lights on is to let the generators plan on pillaging a state in crisis, the state might want to step in to provide support beforehand.

[1] leaving aside the point the ‘reducing demand’, in this instance, means poor people are cold or worse.

Is 26GW the actual surplus capacity? My understanding is the number of homes without power that were not part of intentional blackouts would have surpassed grid capacity. This aligns with heating taking more power than summer cooling. It's normal for Texas to have a few blackouts per summer season due to demand.

26GW is the thermal capacity that the market would like have had, IF there had been sufficient natural gas. [1]

And that ERCOT's extreme plan (worst case scenario) had only anticipating loosing [2] 14GW of 'thermal' (i.e. mostly natural-gas) capacity. So 'lost capacity' was 2x the worst case anticipated.

Estimates are that supply was about 20GW below peek demand.[3]

Sources: MIT trained Princeton Professor who was tweeting real time data from ERCOT and is one of the nations leading researchers on energy systems, grids, and reliability.

I highly recommend all of these threads:

[1] https://twitter.com/jessejenkins/status/1361348544154664961 [2] https://twitter.com/JesseJenkins/status/1362062037275279363 [3] https://twitter.com/JesseJenkins/status/1362063819858714633

>Well, there was not resiliency standard that required the natural gas infrastructure to be winterized.

>I ask because I broadly understand ERCOT to have delivered the lowest prices

These two statements are the opposite of each other. Low costs because no winterization. Low costs because the grid is unreliable.

If the consumer retail electricity rate was allowed to float minute by minute, there'd be no need for "peaker" plants.

The notion of fixed electricity rates is the source of most of the problems.

After all, there are regular events where oil refineries go off like, burn down, blow up, etc., and yet I'm still able to buy gas because the pump prices go up, reducing demand to match the supply.

Note that this big freeze also impacted gas deliveries, and gas prices went up, and no shortages. A fixed pump price would have produced shortages and lines.

Whenever there are shortages, there's almost always a fixed price in there causing the problem.

One problem with this is it forms a regressive structure where poor people are priced out while rich people get to keep consuming at whatever rate they can stomach.

It would work better and much more fairly if the floating rate was scaled by the net worth of the customer.

That's completely defeating the purpose of the price signal, which is to cause whoever is the most price sensitive to cut usage. By charging less to the people who are most price sensitive, the average price charged in order to deter usage would have to increase dramatically.

It also creates ridiculous perverse incentives where people with little money waste electricity in the midst of a shortage because they're not being charged the market price for it, forcing cuts in actually productive alternatives.

You are right it creates perverse incentives, but so does the current system. For instance check this article [0] that shows pictures of Houston's skyline during the recent power outages where completely empty skyscrapers are wasting power while ordinary people freeze.

I'd rather have poor people using electricity than rich corporations. At least keeping people warm is productive.

[0] https://heavy.com/news/photos-houston-skyline-lit-up-power-o...

>I'd rather have poor people using electricity than rich corporations.

Deicing power plants and pipelines requires electricity. If electricity cost is $9000/MWh then paying that money is worth it since you unlock the ability to produce more electricity and sell the additional production capacity you brought online for $7000/MWh. Repeat this with multiple power plants and you are back to $100/MWh.

If you just hand it out to random people you might not have enough electricity to keep the electric grid alive.

None of the skyscrapers in those pictures are power plants or pipelines. Human beings were freezing to death while empty corporate headquarters remained lit up like xmas.

Maybe there should be some reserve power in the system to make sure power plants have capacity to heal themselves, sure. But that's really a tiny part of the overall system.

I agree with your idea of charging more for higher earners, much like is some northern European countries fines are proportional to income... the photo linked is eye opening, I'd suggest in extreme weather cases like this, corporations should be charged more depending on how many employees/income/profit. Indeed if capitalism is meant to help create a fairer more innovative/dynamic society Corporations shouldn't be represented legally on the same status (as they are in the U.S.) as people...

Capitalism, unfortunately, is not meant to help create a fair society. It is designed to maximize shareholder value based on endless growth and consumption, and that is all it is good at. This is unsustainable both socially and ecologically.

Instead of giving corporations legal status as people, we should be giving the Earth legal personhood. Some countries are already starting to do so. [0]

[0] https://therightsofnature.org/universal-declaration/

How Jet Stream Collapse will Cause Mass Starvation Explained by Dr. Peter Wadhams:

https://www.youtube.com/watch?v=KKilc_oMbrg&feature=yout...

Here are four countries that have given nature the same legal rights as humans. #BeLikeThem. Solutions are everywhere. Let's implement them and protect people and the planet. #ActOnClimate #nature #forests

https://twitter.com/MikeHudema/status/1361531384351891456

>You are right it creates perverse incentives, but so does the current system.

Does the current system charge customers by minute by minute spot prices? I don't think so. If electricity costs $5/kWh you bet the CFO is going to tell the janitor to turn off the lights.

The current system allows rich customers to negligently waste electricity that poor customers need to stay warm. If the system prioritized usage and charged the corporations $5/kWh while charging poor customers the standard rate, people wouldn't have frozen to death.

GP's point still remains. Even if you do charge corporations $5 kWh, that's likely not enough to solve the power deficit. After all, corporate offices aren't exactly power suckers (a 1500W space heater is equal to at least a few dozen LED office lights), and the heavy users (factories) are usually the first ones to go when there's a power shortage. Price signals are still needed to ensure that people are sufficiently motivated to change their behavior. Leaving prices unchanged will basically mean consumer demand remains unchanged.

Charge rich people more than poor people. Cut them off sooner. They have bigger houses that use more energy and they have more blankets and supplies. Poor people with fewer options deserve the power more.

What's needed is a way to shut off electricity on a per household level based on prices. Consumers set the max price they are willing to pay in an outage. If the price is above that, they get no electricity. Complicated solutions like IoT thermostats limiting max temperatures would be better but the expectation of such a deployment is unreasonable.

Howabout a priority system for how power can be utilized and at what price. Example from highest priority to lowest: Power plants' internal keep-alive and ignition mechanisms > Hospitals, fire stations, and other emergency services > Housing >>> Corporations

In general, individual consumers expect sellers to increase the price above the cost of goods in exchange for decreasing the exposure of the consumer to volatility. A case could be made that gas prices violate this expectation, by transmitting sharp price shocks to consumers in violation of the unspoken agreement.

I remember something about how gas prices quite reliably go up rapidly and go down very slowly, which doesn't at all reflect a market that's allowed to 'float'. It seems as though gas prices are building in their own 'fixed' problem: shock-tremor resilience into a very low rate of decline in prices, paired with a very high rate of incline in prices, in order to buffer against market shocks in a way that "boils the frog" so that consumers don't realize it.

Are there any examples of an industry that transmits price shocks directly to customers, with equal responsiveness in both directions, regardless of the opportunity to sellers exploited by gas prices today?

> In general, individual consumers expect sellers to increase the price above the cost of goods in exchange for decreasing the exposure of the consumer to volatility.

Most markets neither have nor want this. If there is a freeze in Florida, the price of oranges goes up. If someone discovers a large new deposit of cobalt, the price of cobalt goes down. If there is a flood in Thailand, the price of hard drives goes up. If a patent expires on a drug, the price of the drug generally goes down.

> I remember something about how gas prices quite reliably go up rapidly and go down very slowly, which doesn't at all reflect a market that's allowed to 'float'.

It's just a reflection of imperfect competition.

If the price they have to pay goes up then they raise prices immediately because there is no point in attracting customers with low prices so that you can sell to them at a loss.

Once wholesale prices come back down, not lowering prices until your competitors do allows you to charge higher margins. But lowering your prices increases your customer volume, so eventually somebody does and then the others have to follow. The fact that this doesn't happen immediately is a reflection of the fact that there are only tens and not thousands of local competitors.

Reply on news.ycombinator.com