Texas, the lone cold star

 In Articles

By Chelton Wealth, February 23

Texas has traditionally been the oil state of the United States and, thanks to fracking, it still is. So much shale oil and gas is extracted in Texas that the United States is no longer dependent on foreign energy. Texas is also a leader in wind energy. There are times when 60 percent of electricity is provided by wind power, but in winter, that share drops to about 25 percent. Less than a month ago, the electricity market in Texas was seen as an example for the rest of the world. A month later, this system has to be overhauled and there is much more interference from the government.

The electricity network of Texas has the structure of an island. There are no connections with other states, which means that no federal supervision is required. Texans leave it to the free market. The electricity network is the responsibility of Ercot, which has to balance supply and demand. But Ercot cannot intervene and cannot force parties to deliver. Because of the strong competition in this free market, electricity prices in Texas are normally among the lowest in the world. This has led to production being optimised to produce at the lowest possible cost. Wind turbines, for example, have no protection against extreme cold. This increases their cost price, making them noncompetitive in warmer times. The power outage is not directly due to frozen windmills, but indirectly many windmills and solar cells form part of the explanation. The cost price of electricity from wind turbines and solar cells in Texas is so low that gas and coal-fired power stations can no longer compete. In a short time, the capacity of wind has doubled, while that of coal has halved. But alternative energy systems cannot be turned on and off like fossil fuel power plants. No one is paid to maintain reserve capacity. A large proportion of Texans were therefore without power. Those who did have electricity shared in the pain, as their energy bills for the past week quickly ran into thousands of dollars.

Because of the cold spell, American oil production dropped by no less than 3.5 million barrels a day. During Hurricane Katrina, American production dropped by 1.4 million barrels per day. The production of natural gas also fell sharply, partly because they also rely on cheap electricity from wind turbines. A total of 185 power plants closed. Besides the frozen windmills, gas and coal plants also closed. Even a nuclear power plant near the Gulf of Mexico was closed for more than 48 hours because its cooling water had frozen. It is a little too easy to blame Global Warming directly. The Midwest of the United States has a continental climate and cold polar air can sink deep into the South without hindrance. In February 2011, nearly 200 power stations closed down due to the cold. In January 2014 it also went wrong. But in those years the power cuts lasted 4 to 8 hours, now a large part of the Texans were without power for 72 hours. A big difference because without heating in 72 hours many water pipes can freeze. The fact that it took much longer now is mainly because compared to 2011 and 2014, there are far fewer coal- and nuclear-fired power plants. There was insufficient fossil reserve capacity.

The costs of this cold wave are high. Without electricity and heating, part of the water supply was also disrupted and frozen pipes caused a lot of damage. Some of the water could not be purified and for the time being, boiling water is advised. Without water, there are no working toilets, and this is an unpleasant development, especially in flats. The Last weekend, Biden declared a state of emergency, as a result of which emergency aid in the form of federal diesel generators is now being made available to Texas.

In the future, the consumption of electricity will increase sharply worldwide. Many of the current networks are insufficiently designed for this. Moreover, there are more and more smaller producers, which means that the network must also become smarter. There will be more electric heating and electric cars will have to be charged. In that respect, the cold snap in Texas was not an advertisement for electric cars. No electricity and no water is bad enough, but with an electric car there is also no transport. Many Texans spent the night in fossil-fuelled pick-up trucks just to stay warm. The problems with the electricity network are not limited to Texas. In California, too, there were constant blackouts last year. Not because of the cold weather, but because of the extreme heat. As a result, there was a lot of demand in the evening hours, at a time when the sun was not shining and there were not enough coal and gas-fired power stations to meet the electricity requirement there either. The Democrats’ Green New Deal is committed to a sustainable climate policy by investing $3,000 billion in the energy transition. Probably because of the development in Texas, a much larger part of those investments will go to making the electricity network more robust, including security of supply. It is probably also a lesson for electricity networks in the rest of the world. This is obviously good news for companies that build these networks and can build reserve capacity. The nice thing is that many of the companies are not even that highly rated, an alternative for people worried about the stock bubble.

Recent Posts
Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Receive our FREE Strategy Reports 

Select from Alpha, Alternative, Overlay and Compounding; or get them all. 
GET STRATEGY REPORTS
close-link