Independent Texas. On Friday I told you that ERCOT was an islanded grid, separated from the rest of the Country to avoid FERC jurisdiction. Shockingly, that was not correct but the correction will leave you shaking your head. The Blackwater DC Tie is a relatively small interconnect between ERCOT and SPP, in the eastern interconnection network. This means that supposedly, FERC could, at their discretion, argue jurisdiction to ERCOT but the counterpoint is that ERCOT could sever that tie and reestablish solitary confinement. So did this interconnection help during the winter storm? No, because the system at Blackwater was undergoing planned maintenance.
Unhedged Hedges. For the third time in this century, lack of winterization has caused generation to find itself on the wrong side of settlement trades. Building cheap in Texas is no longer the best business process, we’ll see if asset owners react differently going forward. Over the next few weeks and months, we will see hundreds of millions in losses announced as well as bankruptcies (see below about consumer impact). RWE renewables is first to identify a $300-$600million loss for its wind portfolio, of which they were part owner (meaning asset losses were even higher). While generation owners have their pricing hedged with off takers, they also have a production requirement to meet those deliveries. Since the turbines were frozen and unable to operate, RWE needed to go to the market at rates as high as $9,000/MWh to meet their contractual obligation. In short, being hedged caused a loss far exceeding any upside for being hedged in the first place since the hedge simply shift the risk from pricing to fuel availability layered on market rates. If you buy at $9/kWh and sell for $0.02/kWh, you’re underwater by 450X. If this happened for 3 days, the next 5 years will go to make up the error.
Understanding Texas Subsidies. Conservative leaders and primetime programming on Fox News are arguing that wind subsidies ruined the Texas grid. For the sake of the argument, we will ignore the fact that the lack of winterization caused the issue (regardless of fuel source), and look at where this is coming from. The root cause of the argument is that a transmission project called the Competitive Renewable Energy Zone (CREZ) was paid for by ratepayers and largely benefitted wind development. Since this cost was not paid by developers directly politicians are calling this a subsidy. CREZ caused wholesale power prices to drop by quite a bit, has plenty of gas generation connected to it and wasn’t paid by taxpayers. Here’s a 2014 review of the project by ERCOT in case you want to dunk on Tucker Carlson on Twitter.
The Fracked Methane Spike. Supply and demand will meet price gouging when it comes to Texas. At the peak energy crisis, natural gas prices went through the roof in Texas and abroad, something I wrote about last week. None other than the Dallas Cowboys’ owner Jerry Jones was the big winner and may find his CEO in front of a Senate committee. His words may already speak for themselves, see here.
Impact To Consumers. One of the first questions I asked on Twitter was whether consumers had exposure to variable pricing of if the retailers would suffer the negative spread. Most consumers are on fixed pricing agreements which means retailers lose the difference between contract and grid price. But some consumers, probably with some level of naïveté, signed variable cost agreements which match the market cost of electricity. One such provider, Griddy, has told its 29,000 customers to find an alternative source given their expectation that consumers will not be paying the $9/kWh that it cost them to heat their home.
POLR Vortex. Provider of last resort, POLR, is the customer acquisition following the winter event. Retailers will be suffering losses, some will not be able to survive from, and the big utilities like TXU, NRG and Reliant are fighting to get their share of POLR allocation which means consumers without retailers get assigned to them. There’s a certain stickiness to consumers so a $0 customer acquisition cost is business positive.
Solar’s Role. Solar was largely left out of the headlines. With only 6.5GW of capacity on the grid, solar generated nearly 3GW most of the time. Some capacity was offline due to grid shutoffs and some plants suffered from snowfall. We have not heard from asset owners about potential hedge issues at this point or how well storage owners were able to benefit during the peak pricing events.
Goodbye MOPR. FERC ends the pricing subsidy and PJM will be able to have the next capacity auction with more market driven bids.
Save California Net Metering. Sign this petition if you want to see the largest solar market continue thriving.
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ERCOT Known Knowns. Here are some things that you may not have known before this week that are important about the Texas grid. First, ERCOT doesn’t cover all of Texas, it leaves out the El Paso and Northern rectangle. You’ll find it interesting that neither of those sections were really impacted by outages. Why? That’s a great question and leads to the next thing you’d want to know which is that ERCOT is essentially an islanded grid. This means that Texas operates it’s electricity ‘market’ with true isolationism. They do this to avoid FERC oversight, I’m told, because in Texas they like things cheap. Cheap you ask? Yes, almost none of the infrastructure is build to withstand winter events and this year is not the first time it has happened. David Crane reminds us that on two previous occasions, NRG assets lost tens of millions of potential revenue because their power plants were not able to operate during winter events. So when wind developers ordered wind turbines, they did not spring for the heating elements for ice conditions which bodes well because neither did any of the thermal power plants.
The Solution? Sunrun and Freedom Solar send in their first images of how you can mitigate infrastructure problems in grid and gas. I am on the hunt for more pictures of a house with lights on because you installed solar with batteries next to neighbors without it. We can fight lies with facts, the visual kind. Send them my way please.
Texas Gas Embargo. Texas implemented a gas export ban, focusing on exporting only their Senators to Mexico instead. This impacted power markets nationally including California where electricity prices reached over $1,000/MWh but only during non-solar times. This price volatility is going to cause major hiccups throughout the Country and hopefully result in some changes to how markets react.
Speaking of Markets. ERCOT, as you know, operates as an energy market and does not have a capacity market. In true free market philosophy, the thesis is that increasing the price will lower demand and therefore make sure that there is always enough electricity available. Texans learned this week, once again, that electricity alone do not make a resilient and flexible energy grid and that their market needs reform.
Why Texas? For everyone that is moving to Texas, I ask you why? Do you enjoy snowboarding on your Austin driveway while your power is out for 40+ hours? Join me in Florida instead, we eat hurricanes for breakfast with the lights on. (My brother is the best realtor in Fort Lauderdale, so he claims, so I’d be happy to intro you anytime) The best part of my neighborhood is that I see solar trucks everywhere I go now, and if you’re running one of them don’t be surprised if I mystery shop with your local branch to see if they are well trained.
Deal News. Sunnova has acquired SunStreet, Lennar’s solar installation business. This puts Sunnova in the origination game on a national level and one step closer to the vertical integration Sunrun has achieved over the years. Nuveen has acquired Greenworks Lending, the commercial PACE provider.
Save California Net Metering. Sign this petition if you want to see the largest solar market continue thriving.
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Solar Plus Storage Pictures. I am on the hunt for pictures of a house with lights on because you installed solar with batteries next to neighbors without it. We can fight lies with facts, the visual kind. Send them my way please.
Save California Net Metering. Sign this petition if you want to see the largest solar market continue thriving.
A Podcast To Listen To. I was pleased to join Freeing Energy’s Bill Nussey to talk about soft cost reduction by making solar permits instant and digital. You can listen to the discussion here.
C&I PPA Webinar. My C&I solar friends at Sustainable Capital Finance (SCF) are hosting an exciting free webinar for EPCs and Installers on Feb 24th, demonstrating how their software users were able to improve PPA project conversions by 25% or more. Learn best practices in executing C&I solar & storage PPAs, helpful strategies for a remote sales process, industry insights, and more. You can sign up here or contact the SCF team at info@scf.com for more information.
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Texas Power Struggle. With cold weather continuing to increase demand and reduce supply in the ERCOT energy markets, Texans are left struggling with power outages and rolling blackouts. This has been going on for several days now, in some ways similar to Hurricane Harvey that parked itself over the Houston area and never seemed to want to move on. Everyone is talking about this and the blame game. Not all of it, or really any of it, based on the truth, facts or data. Twitter accounts from Senator Cornyn, Congressman Crenshaw were amongst the highlights blaming Congresswoman Ocasio-Cortez for the Texan power issues.
The PR Game. When it comes to the press game, count on natural gas communications executives to bring their A-game and in this case they did indeed. Even before the crisis, before I realized what was happening, the PR game was in full effect. On Monday, New York Times ran a headline blaming frozen wind turbines for the energy generation shortage. They did this because the natural gas industry knew that their power plants were going to fail in a massive and systemic fashion. Gas was being prioritized for heating consumption and wells were frozen, the irony of the day. That didn’t stop the WSJ editorial board to go all in on blaming renewables for the troubles.
All Others, Bring Data. Grid operations data show the better story. Jesse Jenkins, highlighted by Twitter’s corporate account, broke down how each generation source was executing against the plan. Wind was not relied on going into the crisis, only 6GW was planned for which created a shortfall of 4.4GW when only 1.6GW was able to get online. On the other hand, only about half of the Texas natural gas fleet was able to operate with over 25GW of capacity failing to operate. For the breakdown on the tweet thread, here’s Jesse’s twitter explanation.
Extreme Pressures. The reality is that engineering and operations is hard when you account for major anomalies. A multi day, deep freeze is almost all of Texas isn’t part of the design process. California doesn’t design for hurricanes and Florida doesn’t look at earthquake risk. The new climate has deeper pressure points that occur more often and we, as consumers, can either plan for the worst or be satisfied to hope for the best. What we need is more flexibility and ability to be resilient, and while wind and solar are comfortable in the variable nature of the energy production, we must also be truthful that natural gas can also be variable if fuel is not available because for Texans, the sun didn’t shine on their natural gas fleet.
Save California Net Metering. Sign this petition if you want to see the largest solar market continue thriving.
Hawaii RPS Signal. The RPS in Hawaii is going well and one of my favorite Senators, Brian Schatz, noticed.
Don’t Hallucinate. Strategy without execution is hallucination and corporate ESG goals without policy focus to back it up are just that. GreenBiz’s Heather Clancy highlights this in her column.
A Podcast To Listen To. I was pleased to join Freeing Energy’s Bill Nussey to talk about soft cost reduction by making solar permits instant and digital. You can listen to the discussion here.
C&I PPA Webinar. My C&I solar friends at Sustainable Capital Finance (SCF) are hosting an exciting free webinar for EPCs and Installers on Feb 24th, demonstrating how their software users were able to improve PPA project conversions by 25% or more. Learn best practices in executing C&I solar & storage PPAs, helpful strategies for a remote sales process, industry insights, and more. You can sign up here or contact the SCF team at info@scf.com for more information.
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Yann