Things could get very hot in Texas this summer. The most energy-productive state in the nation could be headed for a severe energy shortage as average temperatures have been rising, electricity demand keeps increasing, but very little new capacity being built to meet it. Well, not entirely. Almost all the new capacity built in recent years has been windmills in the western part of the state. But these are proving to be useless for periods of summer peak demand, since the wind is usually dormant during the hottest portions of the day.
The graph shows what happened last month when April temperatures proved to be higher than normal. The green line and the scale at the left show electrical demand. The figure usually fluctuates around 40,000 megawatts but in April, with people turning on air conditioners, it spiked to nearly 50,000 MW. At the same time April is a month when utilities perform maintenance on their power plants in order to prepare for the summer heat. So many were caught short. As a result, average prices spiked to $90 per megawatts-hour, almost triple the average of $30 per MWh since January. And these are only averages. On April 26 and 27 between 5 p.m. and 6 p.m., day-ahead wholesale prices spiked to $500. That may only be a taste of things to come.
Texas is in a unique position. For decades it was exploited by the rest of the country through natural gas price controls. Until the 1970s, politically powerful Congressmen from the consuming states in the Northeast and Midwest held the price of interstate gas far below market value for the benefit of their consituents. As a result, Texas began hoarding gas supplies in-state and using it to generate electricity - a practice regarded as extraordinarily wasteful at the time. When the great Natural Gas Shortage arrived in the winter of 1976, officials of the Carter Administration were appalled to discover that Texas and Louisiana were burning natural gas for almost half their electricity while schools and factories across the Industrial Belt were closed for weeks because of lack of supplies. The Carter people responded by extending the price controls into Texas as well and the whole price control regime was not finally removed until 1978.
Fearing its electrical supplies would also be requisitioned in the way gas had been, Texas has always made certain that no power lines be built across its borders. As a result, ERCOT, the Texas power grid, is almost completely isolated from the rest of the country. That has kept other states from raiding Texas for electricity, but the situation has now backfired as the rest of the country has imposed its environmental restrictions on the Lone Star State as well. KKR, a New York investment firm, bought out TXU, the state’s leading power producer in 2007. Bringing the Natural Resources Defense Council into the deal, KKR immediately cancelled 10 of 12 coal plants scheduled for construction. At the time, NRG, the state's second leading power producer, had filed for permission to build the first new nuclear reactors in the country in 35 years. But endless regulatory procedures at the Nuclear Regulatory Commission proved the project wasn't going nowhere anywhere and when the NRC began imposing more restrictions after Fukushima, NRG threw in the towel and began constructing solar collectors in the California desert instead.
As a result, all Texas has been able to do in recent years is put up windmills in the western Panhandle. The state generated 30,000 MWh of wind power in 2011 – more than three times any other state – but they proved to be useless last summer as temperatures reached record levels. When the mercury topped 100 degrees for weeks in a row and power demands hit 66,000 MW, the state’s windmills were operating at less than 5 percent of capacity most of the time. As a result, peak power prices hit $3000 per MWh.
Nothing much as been done to break the logjam. Bad as things were last summer, they could get worse if temperatures reach record levels again this year.