Texas power crisis revealed flaw in market’s design
news.cornell.edu
news.cornell.edu
In systems engineering if we want this to not happen we usually intentionally add volatility, things like putting chaos monkey into your infra so that long-tail failures become common and thus the necessary hardening can’t be missed.
I’m not quite sure what this would look like for an electricity market. Maybe something like huge fines for having your capacity go off-line, which require insurance, and the insurers thus require winterization or they charge way higher rates which make your plant uneconomical. Or a regulation that says all plants must be winterized to a certain degree thus the cost of electricity will just be higher for everyone to pay for mitigation of long tail risk. The fines approach is more indirect but - assuming it works - it leaves room for edge cases and innovation that the “orderly but dumb” regulation does not.
The only person waving evidence around in this thread demonstrates that Texas has substantially lower electricity prices than the US average. And the article argues that there are edge cases where the market design could be improved. But I am well aware that the US has a range of regulatory strategies around power and I'm sure people have done detailed, exhaustive comparisons that are of high quality on the effects and outcomes of different regulatory approaches. Surely there are mountains of evidence that could be pointed to here.
Is it to much to ask that the opinions are supported by evidence? Electricity outcomes aren't that complex. The important variables are price, reliability, safety and pollution if you like.
Texas having a power crisis recently just isn't that big a deal for arguing about regulation vs deregulation on either side of the fence. Highly regulated systems also have crisises, regulators aren't perfect and nobody claims they are.
You need to provide evidence for the claims that the free market improves things, not the other way.
If the plan is to decide what is good and bad by innuendo that is a lousy plan and we can all probably agree on that point. This is the perfect opportunity to debate using facts and evidence rather than all sitting in a circle and observing that none of us have any. These whingers should leave some space for people who intend to be guided by facts.
> Is it to much to ask that the opinions are supported by evidence?
Economy is not a field i'm familiar with so i can't unfortunately provide evidence, but it always appeared to me that with some notable exceptions, regulations protecting consumers from corporations had great effects: lower prices, better quality, better customer service...
Half the articles i read about the USA seem to be about medication prices rising twofold every few years despite being well-studied/produced for decades (like insulin), or ISPs injecting their own advertisement or blocking services from competitors or making lawsuits against municipal ISPs, or people raising debt just for having a lawyer or receiving an education, etc.
There's a lot i hate about France (where i reside), but i'm certainly glad we have "medicare for all" through a national insurance (sécurité sociale), net-neutrality regulations, and free legal defense and education. Although as some would point out, the french governments of the past 30 years or so have been hard at work to dismantle all that.
Competition does not advance humanity. Cooperation is what brought humanity so far (see also: Kropotkin, Graeber, etc). Competition does not reduce costs, except occasionally when a mogul wants to capture the market (like free.fr did when they offered 30€/mo unmetered xDSL back in the early 2000's, which they don't do anymore now that they've become big enough to assert their position).
Don't get me wrong, i'm not advertising for State monopoly. On the contrary, i laud autonomous projects and infrastructure and i'm very critical that in France it's illegal to even build your own house for private usage (unless you follow very strict regulations) or to produce your own electricity (unless you sell it back to EDF). I just don't think that what most people refer to as a deregulated "free market" (based on money and private property) has better outcomes except for the 1% who own everything.
Famous anecdote in french FLOSS circles: when the telecoms regulator (ARCEP) began the process to "open competition" for the ISP market, there were hundreds of ISPs across France and the dozens of representatives couldn't fit in a room at ARCEP offices. A few years later than that, there were only 5-10 represented operators left. Now you can count them on one hand, and the ARCEP people seem happy/relieved about that, as if they'd done their job implementing "competition" by reducing the number of competitors.
"Free markets" rhetoric is a catchy slogan for might makes right. No contracts, no rule of law, no fair and impartial arbitrators, no opportunity for recourse (tort). So not a market.
Only if one ignores consequences (externalities).
System failures leading to fatalities, casualties, losses incurred by other businesses, parents staying home with kids because schools closed, customers getting stiffed with emergency pricing, retail rush on generators and propane, etc.
Your basic Freedom Markets™ scenario of using disaster (capitalism) to bulk transfer wealth from customers and tax payers to gate keeping elites.
Lather, rinse, repeat.
> ...just isn't that big a deal for arguing about regulation vs deregulation on either side of the fence.
What about accountability? Consequences?
Where in your thesis are victims able to be made whole?
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Markets have rules. That's what makes them markets. No rules, no markets. Then it's just an extortion racket, no matter how much lipstick you put on that pig.
So much in the energy literature looks like a clock that stopped. For instance you still see cost estimates of advanced combustion systems from the 1970s that have been carried into the future without adjusting for inflation and changes in technology.
People still compare nuclear power to coal but they quit building coal plants circa 1980 for the same reason they quit building nuclear plants -- the capital cost of the steam turbine is an order of magnitude more than a gas turbine, so even if you get the heat for free a current generation coal or nuclear plant is going to struggle to compete against the power plants we've been building since the 1980s.
You can see a graph of coal capacity added by year here: https://www.eia.gov/todayinenergy/detail.php?id=30812
The US built coal plants in the 1990s and even in the 2010s. These last ones started construction in roughly the years 2003-2008, when US natural gas prices were elevated and (many thought) due to go up even more:
https://www.macrotrends.net/2478/natural-gas-prices-historic...
Coal's brief renaissance was halted by a triple-whammy of lower gas costs (from shale), lower wind costs, and lower solar costs. It's soon to face another whammy: falling grid scale battery costs. I don't think that the continental US will ever build another coal generating station. But that happened more recently than 1980.
Regulators always have a bias towards rate reduction. Once the deregulation movement set in, power generation became a fat hog ready to be exploited. In some cases, investors even got to use tax free municipal borrowing facilities.
You already have all the customers you're going to get
I think it's kind of funny that some people think that "deregulated" markets are somehow magically efficient or competitive. Collusion and monopoly are inherently higher profit margin businesses and so incentivized by unregulated markets. Monopolies can be supply, transport, territorial, or temporal, but all optimize ROI.
Note that regulatory capture is yet another method of stifling competition and creating monopoly pricing power.
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.
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 nothing compared to a HOA that actually runs public services.
Sometimes I feel like I'm the only one of my peers who has actually sat down and counted the beans. Everybody else just looks at the 4K and thinks I'm crazy to live where I live.
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.
It's much easier to replace local politicians or constrain/require local government action via the courts than it is to do the same to an HOA, isn't it?
In either case, you can vote with your feet, but I prefer being able to vote with a ballot
Well, except no one wants to be the guy suing the neighborhood but somehow suing the government lacks that stigma. But that's peer pressure not courts.
I sat on an HOA board as president with no prior experience. Getting involved usually isn't hard. One just has to be willing to show up and to do grunt work.
I am doubt there are many non-democratic HOAs so voting seems a wash between the two.
Sometimes arbitration clauses are the cause. More often, it's because a homeowners association is a private, non-governmental entity and the case between the property owner and the HOA is, legally, a contract dispute.
There's an often-brought-out idea that the Constitution, be it state or Federal, only binds the government and not private parties. "Twitter can censor whatever it wants but the Department of the Interior can't," that sort of thing. Governments at all levels have to follow the Constitution and are generally a lot more restricted in what they can do, and the presumption is that people have much more broad rights to push back through the courts.
But with an HOA, many of them have been set up as quasi-governmental bodies, as in they act like governments--some even have the power of condemnation and foreclosure through their position as technically holding a lien over all of the properties in the development--but they have none of the responsibilities of governments. And if a property owner sues, a court is largely limited to looking at the plain language of the contract and the instrumentalities recorded against the parcel and see if those are being followed. (Occasionally there are state laws that deem some contract provisions to be "against public policy" and unenforceable in that state's courts, but states are very reticent to do this for anything other than quick political wins, like overturning prohibitions on flag poles.)
If they are being followed, the court's ruling is "well, you signed it, tough cookies."
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 <9c/kWh, putting me cheaper than the average of every state.
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!"
What rate do you pay including delivery? My rate indoors delivery charges, sometimes people see those as two separate things.
I'm just surprised because maintaining a grid in an extremely dense urban area that hasn't gotten above freezing in several weeks and getting nuclear power which is very expensive should be a good deal more expensive than the wild west that is Texas energy markets and it doesn't seem to be.
Maintaining the grid in a dense urban area is actually usually cheaper than less dense areas. More customers per mile of cable to offset the costs. Customers in urban areas usually don't impart as much load. There's more utility owned property per customer in a suburb than in a city by a good bit.
Note that it was massively unusually cold, not that it was just cold. A large part of the grid failure wasn't electrical equipment failing, it was really more of a lack of natural gas supply. There's no real long term storage for natural gas, so when you start using more than what suppliers are making you get shortfalls. Residential customers take priority, so gas companies couldn't get more gas. Gas generators were the primary expected generation capacity, but they couldn't get enough gas. Electric demand kept increasing but capacity started falling. Rolling blackouts were attempted. Sites critical to gas generation and supply were not listed as critical industrial customers so their circuits were higher priority to shed load (non-critical industrial and commercial first) leading to further gas shortages which led to further plant shutdowns which led to more circuits being shed. Those gas lines have a good bit of moisture in them. When the gas is flowing, it's not really a problem. When the producers stop because of power issues, lines freeze. Lines were unable to be unfrozen, so gas capacity really couldn't be increased to theoretical capacity even when the producers got power back on. So we had a number of plants which should have been able to operate but there literally wasn't any gas left to burn.
There were some other failures. A nuclear plant had a cooling system pipe exposed which froze. Coal plants had open piles of coal freeze solid without equipment to break up the pile and move the coal. Some wind turbines we're offlined as they were worried about icing as they don't normally need de-icing. The skies were really cloudy so solar didn't have as much output. But the vast majority of power failures were failures in natural gas supply.
Other market operators in north America have different means of doing it. PJM's capacity market strategy ( https://pjm.com/markets-and-operations/rpm.aspx ) has been a reasonably successful, at least so far. CAISO has their resource adequacy planning but the changes in the western interconnect have been seriously straining both the market model and the reliability coordination in parts of California. Can't dig up a good link right now but there has been some discussion that one problem with ERCOT's forecasting was that it assumed demand stopped increasing once it reached a cold-weather ceiling, which may or may not have contributed to lack of early action in the 2021 storm. But they also have no good means of early opportunistic demand reduction, which might have trimmed several GW off peak demand during the storm as many empty buildings and industrial users were still up and running with no one able to safely go to the facilities and safely shut down unimportant loads.
I remain personally of the opinion that if it takes increasingly complicated rules and financial structures to get the desired results, that maybe the modern US concept of a deregulated power market isn't such a great idea to begin with, but it's not going away any time soon.
https://www.sciencedirect.com/topics/engineering/capacity-pa...
https://www.reuters.com/article/us-usa-weather-power-prices-...
Call me crazy, I think that Texas is doing exactly what it set out to do with deregulation. Run the grid more efficiently via market mechanisms. The method that is used to make the grid more efficient is simply to shave off the traditional 20% capacity overhead meant to cover these sorts of situations. There you go, slightly cheaper electricity 99% of the time.
Griddy charged a fixed monthly subscriber fee, and then passed through delivery charges, taxes/fees, and the 5-minute wholesale electric rate (IIUC, as set by the ercot market). These all came out of pre-paid customer deposits, generally backed by auto-pay when the account was below some amount. Griddy "charged" $9/kWh intermittently while demand was outstripping supply but the system was largely stable. This model was approved by the (de-)regulators.
After the large-scale blackouts, the public utility commission pegged the rate to the regulatory cap in the market for a few days. This was ostensibly to ensure maximum incentive to bring all possible generation back online (though plausible, I personally suspect this ended up just being a reward to large operators who owned both plants that were part of the problem, and plants still online to rake in market-cap rates for several days.)
Any retail power companies whose pockets weren't deep enough to stay solvent while paying ~200x normal wholesale rates for several days went under. In Griddy's case, bankruptcy was a step removed; these rates were passed through to customers via autopay until the transactions stopped clearing, either because the account was empty, or the customer removed the payment method. IIRC none of the providers were legally allowed to cut customers off during the emergency, so these turned into massive bills (though I think Griddy clarified pretty quickly that they wouldn't be pursuing anyone for these). Since Griddy was a pre-pay service, I doubt they had enough of a buffer to absorb these whole-sale costs without payment for long.
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.
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 capacity fees and/or capacity markets, as they provide incentive to build surplus capacity, seem to me to be an argument against the existence of the market mechanisms at all. Simply:
1 - We need to deregulate because it will make generation more efficient. 2 - The only real way to make generation more efficient is not to have surplus capacity (this is my own claim). 3 - Market mechanisms are needed to incentivize surplus capacity, or else we wind up with blackouts.
I think that the fact that point 3 seems to follow is in fact a clear argument against point 1. Why deregulate if not for the supposed efficiencies in generation? If they're eaten up as soon as we have a separate market mechanism to incentivize surplus capacity, then the two markets don't do anything but justify one another. Just go back to vertical integration and be done with it.
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.
Market mechanisms DO incentivize surplus capacity. There are peaker plants stationed all over the US that operate under 24 hours a year. The rest of the time they're either paid to be on standby through a capacity auction, or they're just not paid.
SOme of these plants also exist in Texas. And they are there because companies crunched the numbers based on past data and saw that the money coming in for those few hours is enough to cover that whole year.
The thing is, those high pricing events, which usually happen during heat waves, are something you can quantify: how often do they happen, how much money can you make, how much money will it cost to set up and wait for those events. Probabilty and severity are both quantifiable.
The polar vortex events that hit Texas this year, last year, and 10 years ago, are something that is not quantifiable. I know, because otherwise my company would be quantifying it. SO it's high severity, incalculable probability - ergo a black swan event. The market cannot deal with those.
Predictable is a reason for a government regulation.
Without that, you need quantifiable.
What is the probability of a polar vortex this year? (P) How many hours of high prices would that cause? (H) What will the price be during those hours ? (Pr) What is the probability that our grid uplink will go down and cut us off? (Pd)
So, on the profit side: P x H x Pr x (1-Pd)
Liability:
What is the probability that our failure to winterize will cause a blackout? (Pb) How much damage will that cause ? (D) How much of it is our legal responsibility? (L)
Pb x D x L
Now: how much will winterizing cost? C
The big question:
C ?>? Pb x D x L + P x H x Pr x (1-Pd)
Complicating factors: in Texas, L is 0. For everyone. And P,H,Pr, and Pd are all non-zero, non-negligible, but not quantifiable.
Some industrial customers like datacenters have strict availability agreements with customers and won't be able to accept prolonged cutoffs.
Forcing non residential customers like these to curtail their use would likely end up driving the industry (and corresponding tax revenue) elsewhere.
But what you're talking about does already exist, and it's called demand response, https://www.energy.gov/oe/activities/technology-development/...
But that's not the way our legal and political system actually works.
Edit: I’ve interpreted the second part of your comment as an objection to the first part, but if that wasn’t the intended message it’s my bad :)
I'm suggesting that what I think ought to be the way the world works in fact is not the way it actually works.
This is a criticism of our current system, not using it as a reason to dismiss the idea of changing it to something better.
Unless it's already built, it's rather expensive to rebuild.
We don't have the collective power to save everyone, and if we overextend ourselves trying to do that, then there is a risk that the whole system collapses for everyone, or partially collapses and causes more pain than might have happened without spreading ourselves too thin.
We obviously need to struggle to make a good world for everyone, but nature is fucking brutal and it doesn't care about our sense of ethics.
Except we do? We have plenty of resources if they were distributed more evenly. In this particular example, other states are able to provide energy during rare events because they did not choose to go with a pure market based system. They aren’t on the verge of collapse.
Grid operators only see the costs they don’t see the benefits thus an inefficient allocation of resources is guaranteed.
(The lower rates were not just from ‘efficient markets’ but also it being possible for high cost producers such as steam turbine coal fired power plants to go bankrupt in the fracked gas age w/o bankrupting the whole utility.)
In sparsely populated or geographically difficult areas (islands, semi-frontier areas, etc) that is common. It's not an exact comparison, but Texas has roughly equivalent GDP to Canada. They could certainly match Canada's power reliability if the state government cared to do so. Instead the single-party majority has been content for decades to let major events keep happening instead of making commercial entities meet more rigorous reliability requirements. It would certainly be significantly more cost-effective than eating 100-billion USD disasters.
Wow, that sounds horrible. I tried googling this since I hadn't heard about this before. I came across one 11 year old who his parents claimed died of hypothermia. However, the autopsy revealed that his death was due to carbon monoxide.
Source: https://www.khou.com/article/news/local/conroe-police-autops...
https://www.dshs.texas.gov/news/updates/SMOC_FebWinterStorm_...
While the freeze to death isn't true, that death is still attributable to the electric grind being down
Fixed that for you. The Federal government will bail Texas out. Always has always will.
The Southwest Power Pool has such regulations which is why they didn't have the same level of issues in the parts of Texas they serve.
And they chose.... poorly.
Much simpler to just mandate that you have capacity available (and inspect and penalize if you aren't winterized), but that will essentially put a cap on the amount of solar, wind, and natgas energy production (until/unless you get much, much bigger battery capacity).
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.
The correct answer seems to have been forcing the gas generators to winterize.
It's very possible that in a competently run system, where both renewables and fossil fuels were properly hardened, wind would have meant the difference between blackouts and getting by.
Imagine if you asked for bids for a backup solution but only ever tested your backup when you really needed it. Likely after a few years of never actually needing to access the backups, the backup companies would start taking shortcuts either to undercut competitor’s pricing or to increase profits.
Likely, something similar happened here as well.
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.
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".
I'd imagine our relatively milder climate also has a lot to do with it.
This measure does get triggered occasionally, generally after transmission or generation failures combined with hot weather.
(The NEM has a wholesale spot price ceiling of AU$15,000/MWh, US$10,732 at current exchange rates or US$10,245 in PPP terms).
But states have interconnections that make it more resilient.
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, this was it. And yes Texans blamed ERCOT because blaming the right-wing politicians whom they answer to (via the Public Utility Commission) does not digest easily, and it turned out wind & solar couldn't be blamed either even if you could somehow make that Obama's fault.
It's the kind of massive shit show you get when politics is no longer competitive, much like California. Still better than CA, I guess, for the moment...
Wait no I'm not finished. Imagine there's a big hurricane, you gotta get out of town, low on gas, and you pull up to the gas station and the price is... $900.00/gallon. That's how much the price of electricity went up. That is GOUGING. That gas station owner would go to straight to jail if customers didn't murder him outright first. But because this wasn't retail, it was perfectly okay, even though millions of Texans are now paying for it, for years to come. What a crock of fucking shit.
Wait, wait, no I'm STILL not finished. Texas politicians made sure they walled off their own energy grid so that they wouldn't have "interstate commerce" and thus prevent federal oversight, which would not have allowed such extraordinarily low reserves in the first place. This is STRICTLY the fault of those politicians, and they answer for shit, because that's life in a one-party state, be it communist, fascist, democrat, or republican. Again: A crock of fucking shit. Fucking hell.
Health care in the US is no different.
It's traditional to call this 'efficiency' and 'freedom.'
But perhaps it's more realistic and honest to call it 'grift.'
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 prices and ensure scarcity for those unfortunate enough to suffer it (Ie. Rolling blackouts, no fuel at the gas station, etc)
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.
Under the system Texas uses, it's the promise of those huge payments that encourages people to build excess peaker plants.
If you remove them, and don't replace them with something better, then outages will become more common.
The reason they exist isn't to hurt load serving entities.
> amortizing the costs of that through rate increases for probably the next decade
That's a good thing. That's the good outcome. The better alternative to giant peak fees, which is paying for capacity, has the same result: the base price is a little higher.
The bad outcome is entities that can't just amortize over a decade or longer.
Why not? If it's expensive enough you'll get people flying in spare generators from out-of-state to supply the demand.
Unless the Navy happens to have a few nuclear vessels parked in the gulf ready to hook up, it is literally impossible to move hundreds of MW of generation in a week, much less the 20 GW that Texas needed at the time.
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.
Inefficient in the sense that some of the electricity is turned into... waste heat?
(ok, it's not scientifically correct to say that anything is over 100% efficient, and COP gets lower as the temperature decreases, but a good minisplit can still deliver a COP close to 2.0 down to 0 degrees F)
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.
A bit more sophisticated thinking is required here -- if you want people to maintain over-capacity, you either pay them during the good times or pay them during the bad times.
This means that it is basically illegal to provide a capacity for backup power that is only used intermittently. This is because the backup power needs to be priced high to justify having it sitting there all year doing mostly nothing.
Having banned a market solution, governments then stepped in to overcome the "market failure" by running and funding their own backup power supplies.
Source a friend who trades electricity for a living.
So in principle, I could have a contract with a supplier that says they have to pay me serious compensation if they cut me off - like, maybe the kind of money I'd have to deploy to quickly deploy and fuel a diesel generator. Under the Texas 2021 conditions, that might mean I've have to get the thing helicoptered in.
Presumably such contracts would focus the minds of the risk-takers.
Upthread, I read that the "market" in Texas consists of suppliers offering all kinds of different tarrifs, like free-after-midnight and so on. This makes it almost impossible for a consumer to compare different offerings. Some suppliers are offering apples, others oranges. We have this in the UK; successive governments have struggled to get consumers to switch suppliers. There is inertia. The variety of tarrif types means that the product doesn't behave like a commodity, because consumer energy contracts are not fungible.
You double your investment, and profit falls. Or, you invest nothing, and rake in the cash. Great plan. I just don’t understand why they expected anything else to happen. Markets are not magical unicorns, they’re just one way among many to set prices, sometimes they’re the best way, sometimes not. Conservatives deify capitalism to the point of absurdity.
Essentially it reached a point where electricity wasn't available at any price.
Compare the gasoline market in the US. It's sufficiently competitive, so there is no way for gas stations to start refusing offers under $50 a gallon and wait for people to get desperate.
But that doesn't mean there will be enough plants, even if there is sufficient competition, it would just push out manipulators.
About 1-2 weeks before the storm I ordered 10kW gas generator https://www.amazon.com/dp/B07Q1DLKBG for about $1350 (it is cheaper now because there is no storm coming :))
It uses about 0.9 gal/hour to produce 9.5kW (let's round to 10kW). This is real output as I powered the whole house with it, including 7.5kW electric HVAC heating element that are switched on when temperature falls below heat pumps' ability to pump heat from the outside (we do not have propane/natural gas.)
0.9 gal was probably like $2.5, meaning 1kW cost me just 25c vs regular price of about 11 cents when getting electricity from the grid.
Considering that people were paying $9/kW prices to the Griddy (https://www.vox.com/2021/2/20/22292926/texas-high-electric-b...) and the like, that $1,350 suddenly became a very attractive option. Except yes, you have to overbuild and not put efficiency at the top.
Furthermore, if electricity "market" was indeed a market, I would imagine there would be plenty of people ready to plug their generators to feed the grid. (i know it is not as straightforward of just plugging it into the grid and starting, but between $.25/kW and $9/kW I am sure solution could be found.)
Also, that "market" was forced to cap prices at $9/kW. The real market price was probably much-much higher.
The full episode requires to pay but the free versions are usually pretty informative too: https://xenetwork.org/ets/episodes/episode-145-a-slow-take-o...
Surely any such incentive is self-limiting? The more preparedness it creates, the less likely it is to pay out. The article talks about the uncertainty of there being a payoff, but not about how the incentive itself affects that uncertainty.
I was in power markets when Texas dereg happened, and our economist termed it a “priced to fail” market design. Wasn’t wrong!
https://news.ycombinator.com/newsguidelines.html
We detached this subthread from https://news.ycombinator.com/item?id=30267282.
The reality was layoffs, higher rates, and more profit.
I assume these commenters are either too young to have much life experience or young and idealistic without seeing how the world really works.
I mean for $1,000 I can have effectively a 1990’s supercomputer in my pocket. The government didn’t do that, greedy capitalists did.
Took some serious decades and big money to switch from government having outsized impact on demand.
Heavily reliant on research funded by the government, ambitious funding for things the internet, the financial stability and access to markets supported by the government, etc. Neither side of this is doing it on their own — it’s like trying to decide whether the wheel or chain deserves credit for making your bicycle work.
Greedy capitalists trying to make more and more money figured they could do that by making better and better phones.
Capitalism is why we have super computers in our pocket.
Thing is, those capitalists wouldn't have markets to exploit or tools to do so if not for over 50 years of government inducing the demand ("Silicon Valley" literally started because US Navy colocated a bunch of aviation projects, and later it pulled electronics industry there)
Android is more "free market" than iOS: network providers and OEMs can extend the source code to their requirements and "compete" to consumers detriment. The consensus on HN seems to be that the centralized planning/walled garden approach of iOS is superior.
1. I'm being intentionally provocative,but hear me out: Unix, the IBM PC, Angular, React, CUDA
No-one here is arguing if the free market helped improve CPUs, but I think it's an entirely different question if things like free electricity + gas markets are useful (the evidence from Texas exactly seems to suggest "no").
Your constant amazement indicates that either you don't understand something, or the rest of the world are idiots can't see what's so self-apparent to you.
It's a literal idealist position to insist that free markets cause development, when the vast majority of material evidence across the world points to the contrary.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
https://news.ycombinator.com/newsguidelines.html
We detached this subthread from https://news.ycombinator.com/item?id=30266534.
The ism is the problem here
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'd love to know if anyone's written anything about say, FERC vs ERCOT's gas pipeline winterization requirements.
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.
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.
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".
I agree that Santa Ana was authoritarian, but the Alamo was not a symbol of freedom from authoritarianism. It was a rebellion which was only a relevant point because American settlers chose to live in Mexico and failed to uphold the contract with their new government: to limit slavery to their own properties and not to spread their Protestantism. Your interpretation of the situation was missing more relevant info than mine was.
I think you are missing that Texas had always been distinct - not just part of Mexico/Spain - and that those immigrants didn't suddenly pop there right before to pick up Texas but had been living there since it was Spanish territory.
Even France wanted to buy Texas as a distinct entity at one point.
Competent regulators can see the past and prepare for things that happened a decade ago to reoccur.
This seems to happen with hurricanes, floods, fires, and these polar vortex storms bringing extreme cold down into the lower continental US.
You cannot "free market" infrastructure that is expensive to duplicate and uses up scarce resources.
A "second grid" that is 100% reliable, for example, would be terribly wasteful of the physical space required to run it.
In addition, "free market" didn't give us universal electrification to begin with. Why would you assume that it can run it?
At this point, we have run the "deregulation" experiments in California and Texas (and elsewhere). They have failed.
Critical infrastructure needs to be managed by a political process.
Utilities in most places are pretty heavily regulated. In like that last 20 years we have had ~0 gas outages and probably less than 10 days of power outages here.
The weather event in Texas had the problem of being rather extreme, but it sure wasn't unimaginable or anything like that.
I don't know why everyone seems to be judging the soundness of the Texas grid based on single event that happened last year. Yes it was catastrophic, but so was what happened in 1998 here in quebec or the outages that occured in 2004 in Ontario or even the perpetual mess that's California's grid.
My family in eastern Ontario was without power for 8 days in 1998, and another friend was without power for 17 days. Ontario had failed to enforce proper engineering standards for pole lines, and as a direct result of the review of standards after the '98 ice storm, ESA regulation 22/04 significantly improved standards for these systems. Regulation 22/04 wasn't fully implemented by Hydro One and Bell until 2007-2008, and one consequence of 22/04 is that the cost of installing new fibre on old pole lines increased massively at that time as permitting process went from being handshake deals to requiring detailed engineering work.
Those of us trying to deploy broadband in some areas simply cannot afford to replace every single pole in some areas as is required by modern engineering standards. I have personally encountered quite a number of class 5 - 35 foot poles with 3 phases of power on them that were installed in 1948! Survey work in the past month even found a couple of poles from 1929!!! Those poles are effectively toothpicks at this point in their lifecycle. Granted, the older poles that were treated with creosote last a heck of a lot longer than the more modern "environmentally friendly" CCA-PEG treated poles, but they're pretty small and often have glass insulators that you really don't want to be anywhere near when that pole starts swaying due to the movement of a cable lasher.
Learning about all of this telecom and electrical domain knowlegde has been kinda fun in its own way. =-)
And you are right, that storm was pretty unique because of how much ice (instead of snow) it ended up creating. But honestly, it wouldn't surprise me if we see another big grid failure soon. The network has been noticeably less reliable the past 2-3 years, and not just in my location. I've had to build a DIY UPS for my home server this year because of that (the outages have been around 7-8h each so an off the shelf UPS was not really an option if I wanted 100% uptime). Hopefully I'm wrong because electric heating is massive here.
A transformer at a substation that serves much of the town blew up a few years ago causing a several day outage, so it definitely isn't a few hours. They had rolling black outs in place in less than a day and had power back in less than 3 days (there was not a spare on site).
The ideal of a free market is simply not compatible with reality.
(you can read promise as 'value prop' too, I don't know much about these, just that they exist and are a recent creation)
See, for example:
https://kalshi.com/ (if you're in the US)
https://polymarket.com/ (if you're elsewhere)
Also, if you just want to get your feet wet, this one utilizes a system of reputation rather than money:
Markets need a much less restrictive environment to be liquid enough to have accurate predictions.
Also, the granularity of bets is in 1/100 units and there is a huge market tax on withdrawing funds.
There may have been lots of promise, but there is a lot of friction which explains why PredictIt didn’t live up to that hype.
> For the left and the right, major multinational companies are held up as the ultimate expressions of free-market capitalism. Their remarkable success appears to vindicate the old idea that modern society is too complex to be subjected to a plan. And yet, as Leigh Phillips and Michal Rozworski argue, much of the economy of the West is centrally planned at present. Not only is planning on vast scales possible, we already have it and it works. The real question is whether planning can be democratic. Can it be transformed to work for us?
https://www.amazon.com/Peoples-Republic-Walmart-Corporations...
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.
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.
A state grid can draw from the national grid when required. The draw can also be preplanned and game dayed before actual disasters.
They can't just raise rates or borrow money whenever they want. These decisions are regulated and political. So there is a set amount of income coming in to improve things and repair things and to pay off debt.
They were required to build out wind power. Probably a good thing in the big scheme of things, but that takes money away from other priorities. They have to fund the capital improvements of putting the windmills out there and expanding the transmission capacity to get the electricity to where it will be used (a long ways away). And they have to make other improvements and alterations to account for the intermittent nature of wind.
While they're paying for that, it puts pressure on maintaining and improving the other parts of their infrastructure.
What we're seeing in Texas and other places is that the stable system that existed for decades is being disrupted by many things, and it will be a while before we reach a new point of stability. It's an enormous engineering, economic, and political challenge.
Uhh, yes they can, and yes they do. Wholesale rates of electricity change every 15min in ERCOT. During the deep freeze weather event you could sign up for electricity plans which exposed you to the wholesale rate of electricity.
The retail rates you pay in the open market are determined by the contract you signed. Lots of REPs offer all kinds of pricing structures on their contracts, the contracts offered change every several days and can all kind of term lengths or even allowed variability.
The amount generators are getting changes constantly in this market. As mentioned earlier, spot prices change every 15 minutes. Bids take place in day-ahead markets as well, which change based on tons of different factors. The only people getting somewhat fixed rates are the distribution companies but even then their rates are allowed to change every now and then, and their prices are based on usage.
Wind power produced above projected rates. The biggest problem was lack of winterization of natural gas infrastructure.
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.
Rolling “black outs” in California in recent years were due to two reasons. When we approached maximum capacity, the California ISO requested large electrical users voluntarily reduce usage. In times and places where that wasn’t enough, some areas saw black outs. This is because demand on the hottest parts of the hottest days of the year breached supply/capacity by the western electrical grid.
Further, PG&E (one energy provider in. Ali for us) did create blackouts during weather that was most likely to cause fires with their equipment. These had nothing to do with electrical load/capacity, but with environmental factors.
PG&E has struggled to prune foliage from their equipment, which is one of the causes of recent fires. They claim environmental regulations are onerous, but this is the same company that went into bankruptcy after poisoning multiple towns (causing cancer cluster) and allowing a neighborhood in San Bruno to explode due to lack of proper maintenance on their natural gas lines. They were also found guilty of deaths (murder?) in some more recent fires.
There was never any problem with supply of power though, since there is plenty here due to hydro.