California, Texas fail the power test together

Are Texas and California really so different? They certainly look different from the rest of the country in one respect. For all their contrasts, Texas and California are currently united in asking their respective populations to unplug appliances and forgo the air conditioning. Both have experienced blackouts of some form in the past year, and both have issued warnings about potential power shortages amid unusually hot weather. Given that it’s only June, both may yet suffer more as summer rolls on.
The proximate cause of their problems is very hot weather raising power demand to levels that may outstrip supply. The latter is constrained by various things, with California’s drought curbing hydropower and Texas facing an unusually large amount of generator outages.
Behind these lie similar structural issues, however, revolving around reconfiguring a 20th-century grid for 21st-century changes. Weather on steroids is one of them. Episodes of extreme heat — and in Texas’ case, cold too — test the historical norms used by grid planners. Climate change is likely to make those tests more frequent.
Another is the expansion of renewable energy meant to mitigate those climate risks. Solar and wind power are different from conventional generation because they depend on weather and timing to operate and have minimal running costs (as they don’t burn fuel). This makes them an odd fit for power markets designed around the concept of switching power plants on and off as demand rises and falls, with the most expensive plants switching on last and off first.
California presents the most extreme example of this. Booming solar capacity — roughly a third of it on rooftops — has crushed demand for grid power in the middle of the day. This squeezes the generators that typically switch on quickest when demand surges: natural-gas plants. California’s gas plants ran the least of any regional power market in 2020, at less than 40% utilisation, on average; down from almost 50% just five years before. With fewer hours in the day to make money, they rely on peak pricing after sundown to make the business work.
Texas faces a similar issue, albeit less pronounced and for different reasons. High wind-power penetration has squeezed gas-fired plants there (see this). Yet solar power is expected to also proliferate under those sunny Texan skies, taking market share during peak air-conditioning hours in the afternoon.
Two states with different systems and politics. But both have high and rising renewable power capacity that, for now, relies on gas-fired plants for backup even as it eats their lunch. This isn’t an argument against renewable power. If the market structure struggles to accommodate it, then the answer lies in changing the market structure, not forgoing cheaper, zero-emissions energy.
What both states grapple with in their own ways is how to reward reliability; that a power plant will be available when needed, in other words. In old-style, vertically integrated power markets, this is done by building spare plants and embedding the carrying cost in utility bills. Deregulation kicked off multiple experiments in other approaches.

—Bloomberg