Texas’ famed aversion to government intervention is expressed in the physical infrastructure of its power grid, which is largely isolated from the rest of the U.S. to avoid federal oversight (see my colleague Tim O’Brien’s column on this). And Texas abstains from things like capacity payments to encourage new power plants, prioritizing lower prices over redundancy and relying on occasional price spikes to do the job.
And yet, as we begin thinking about the implications of the icy blackouts currently gripping the state, it’s worth remembering that even Texas’ libertarian streak has its limits.
The current crisis is dealing a heavy blow to the state’s attachment to a lean, laissez faire grid. Cheaper electricity is great but, like skipping insurance payments on your home, feels like a false economy when disaster hits. BloombergNEF estimates wholesale power sales on Texas’ main grid could top $30 billion this week.
The obvious rejoinder is that while the market may have worked from the perspective of a certain kind of fanatical economist, it didn’t from the perspective of a certain kind of homeowner wearing three jackets and spooning cold spam from a can by candlelight. For $30 billion, Texans got partial service leaving millions of them freezing in the dark (and maybe thirsty, too).
I suspect that after the immediate crisis has passed, simply blaming wind turbines won’t cut it. “Freefall is usually the end of free markets,” as Kevin Book of ClearView Energy Partners, a Washington-based research firm, puts it.
But it should mean all sorts of interventions, ranging from mandating the winterization of generating equipment to potentially changing the power-market structure to incent more capacity or smarter demand response, get put on the table. All involve costs and tradeoffs. Yet energy has always been too important to leave to the tender mercies of the market. Even the wildcatters know that; indeed, they have frequently depended on it.