The energy industry’s largest international gathering, CERAWeek by IHS Markit, was conducted virtually last week with “unprecedented” participation by more than 20,000 delegates from 95 countries, according to event organizers.
Some 500 speakers in over 200 sessions discussed decarbonization, affordability and energy security, while also offering their visions of post-pandemic economic recovery and growth.
CERAWeek is expected to return to Houston next year, where it typically draws more than 6,000 attendees from around the world.
This year, organizers added a pair of sessions on the February winter storm that sidelined power plants and caused widespread outages in Texas. Rebecca Klein, a principal in her own consulting firm and a former Texas Public Utility Commissioner, led her panel through a discussion of the systemwide failure.
When asked how it happened, IHS Markit Vice President Lawrence Makovich pointed to the ERCOT energy-only market’s “inherent flaw” of depressed pricing levels not incenting new generation.
“There’s an underinvestment in the amount of capital and an underinvestment in the capacity that is there and available,” he said. “The market causes supply and demand to clear in real-time at price levels too low to cover all the cost of power investment you want for customers to have efficient and reliable energy. They still had price signals that were not going to get the job done. The reliability crisis had come to pass, and you can look back on this and see all the signposts that this was going to happen.”
Michael Webber, Engie’s chief science and technology officer, disagreed. He said ERCOT’s normal prices of $25/MWh haven’t slowed the addition of capital, noting Texas has built more capacity over the last 15 years than any other state.
“Hopefully, we’ll keep building, but we’ll anticipate storms like these and weatherize,” Webber said. “All these power plants could winterize, but it increases your costs a few percentage points. You increase your winter efficiency, but you decrease your summer efficiency.”
“We design a system that’s great for the summer, but are we focusing on these one-in-10-year events? We’re absolutely going to plan for that now,” said Hunt Energy Network CEO Pat Wood. He said 158 Texas plants failed to perform during the winter storm, while generators in the northeastern RTOs don’t seem to share that problem.
“We’re a state that doesn’t like mandates, so we set minimum standards and let the market determine how to meet those standards,” Webber said. “If you want to be in this market, you must meet these standards. Raising the standards according to weather extremes we think will happen more frequently, and that means extreme heat and extreme cold — that’s the way to go.”
Participating in a separate panel of IHS Markit power and natural gas experts, Doug Giuffre corroborated Webber’s point by describing a colleague’s recent research into 70 years of Texas weather data. It turns out the February storm was among the most extreme weather events in the state, “at least through 70 years of data,” Giuffre said, and probably the third-most extreme when looking at duration and multiple days of below-freezing temperatures.
Giuffre said ERCOT’s winter seasonal assessment included the 2011 event that led to two days of rotating blackouts as an extreme scenario. “It was probably the 34th most extreme event,” he said. “It wouldn’t even fall within the top 15.”
“In 2011, the conversation was actually from the bottom up. You had the market participants and industry officials talking about potential market reform,” said IHS Markit’s Bob Ineson. “This time, the legislature has stepped in. That’s going to play an important role going forward.”
“I’ve learned as a regulator that you either pass a rule or you shut up,” said Wood, who has chaired both FERC and the Texas PUC. “Voluntary or best [weatherization] practices are great … but that’s the minimum standard. You’ve got to [weatherize]. You’ve got to ensure people don’t die.”
Gates Explains the ‘Green Premium’
Philanthropist and Microsoft founder Bill Gates helped set the framework for CERAWeek by focusing on the “green premium” — the “extra cost you pay” for products and investments that are more environmentally friendly.
“For electric cars, it’s very small. There are some upfront costs, and you give up some range. … It’s a modest green premium,” Gates said. “We can see that with volume and various initiatives, that green premium will get to zero, and that’s mind-blowing.
“I think of the green premium as what it would cost to change everything and pay the green premium,” he said. “Imagine a phone call I might make in 2050. I’m talking to India, where there are more lights at night and they’re building buildings. If the green premium at the time is over $1 trillion, India will say no. They’ll just do it the normal way. The United States and other rich countries owe more to the world than lowering our emissions by brute force.”
Gates is taking that a step further with Breakthrough Energy, a network of entities and initiatives he established in 2015 with a coalition of private investors supporting innovations to help the world reach net-zero emissions by 2050. Those involved follow the same public-private partnership model Gates has used to improve health, education and public welfare around the globe. The focus has been on net-zero technologies, such as energy storage.
“A cold front in the Midwest can shut down wind and solar. Electricity is only valuable when it’s totally reliable,” Gates said. “Factories and hospitals are built to run 24 hours a day. We put in all generation and transmission in our model and say, ‘What if? What type of storage would work?’
“Growing that electric network and maintaining that reliability is vastly underestimated. We need to draw in lots of people using the same model so you can’t exaggerate the benefits of different things. Utilities, we all need to be using that same model.”
Biden Administration Meets, Greets
A trio of newly minted Biden administration representatives — Special Presidential Envoy for Climate John Kerry, Secretary of Energy Jennifer Granholm and White House National Climate Adviser and former EPA Administrator Gina McCarthy — took advantage of CERAWeek to engage with the energy industry in what host Daniel Yergin referred to as a “meet and greet.”
The administration is counting on the environmental heavyweights to bring the U.S. back into a leadership position in the global drive to achieve net-zero carbon emissions. Kerry noted that President Biden rejoined the Paris Agreement within hours of his inauguration. The U.S. has pledged to cut greenhouse gas emissions by up to 28% from 2005 levels and is expected to make a more ambitious commitment during an April international climate summit.
“We’ve set out a most ambitious climate agenda, not as a matter of ideology and politics, but as a matter of exclusively listening to the scientists,” Kerry said in a question-and-answer session with former Energy Secretary Ernie Moniz. “This is very, very high on our agenda. This is a crisis. It’s a national security threat; it’s a health threat; it’s an economic threat. We’ve spent billions and billions cleaning up after hurricanes and storms and fires. Science is completely unified around what is happening to the planet and what will continue to happen.”
An ebullient Granholm welcomed participation in the administration’s clean energy plans, saying, “It’s a heck of an economic opportunity.”
“The processes that reduce carbon emissions will create a $23 trillion global market over the next decade,” she said. “Where will those investments be? In China? Other economic competitors to us? You better believe other countries are going to be involved. Are we going to be in the battle, or are we going to bring a knife to a gunfight?
“President Biden has demanded we be in the battle, not on the sidelines anymore. The Department of Energy is going to be one of our government’s more fierce fighting forces as we surpass our goal of a carbon-free economy,” Granholm said in continuing the warfare analogy. “We’ve got to add hundreds and hundreds of gigawatts of clean energy to the grid over time, and that will add millions of good paying jobs.”
McCarthy has been tasked with developing the nation’s national determined contributions (NDCs) to reduce emissions as required under the Paris Agreement.
“President Biden went out strong, because he knows there’s no time to waste. One of the things he said is science matters, and we’ll pay attention to it,” she said. “My job is to work across the whole of government to determine an NDC for the U.S., to put some punch behind our commitment. We’re going to work really hard … to deliver on our 2030 goal and be on track to be net zero by 2050. That’s my job, and I’m sticking to it.”
Kerry has been charged with organizing the global summit on April 2, which he said means pulling together the world’s major GHG emitters. That would include China, the only country that emits more GHGs than the U.S., and an old foe from Kerry’s time in the Obama administration.
“Yes, there are tensions today that did not exist back then. They’re out in the open,” he said. “It’s no secret there is strong competition with China in any number of fields … but the climate crisis is not something that can fall victim to other concerns and processes. We’re not solving this with any one country alone, but you have to have China at the table. I think China can be a critical partner in this as they were before.”
Glick: FERC-NERC Recs Will Have Teeth
FERC Commissioner Richard Glick said he is committed to enforcing recommendations from an upcoming joint report between the commission and NERC into the grid’s operational issues in the Midwest and South following the February storm. (See “FERC, NERC Announce Joint Inquiry,” Slow Storm Restoration Sparks Anger in Texas, South.)
A similar FERC-NERC report after the 2011 event in Texas went unheeded. The “pretty lengthy report,” as Glick recalled, recommended generation facilities be weatherized. Yet, nearly three dozen plants that failed 10 years ago also failed last month.
“Somehow, throughout the process, those recommendations turned out to be guidance,” Glick said. “In a competitive market like Texas, one competitor is not going to voluntarily make changes to weatherize their equipment if another competitor doesn’t.”
“I’m really glad FERC and NERC are doing this study,” Wood said during a separate discussion. “I hope they don’t just change the date and give us the same report. This can’t be swept under the rug.”
“The 2011 report and circumstances should be a warning to all of us,” Glick said. “I’m making a commitment that we’re not going to let this report be a report that sits on the shelf. It’s just disturbing that the 2011 recommendations didn’t lead to action. We need to make sure that doesn’t happen this time.”
Glick also said long-haul transmission will remain a priority for the commission. While FERC has no control over siting, it can pull other levers to encourage bringing renewable energy from rural areas to metropolitan load centers.
“If we don’t act, I don’t think we’re going to reach those clean energy goals,” he said. “With our targets, we’re going to need all the renewable resources we have. We need a lot of transmission, whether offshore or in the middle of the country. We do have authority over [transmission] planning and cost allocation. … We have a responsibility to ensure that we only allocate costs to those who benefit.”
Will Carbon Price Drive Change?
Rostin Behnam, acting chairman of the U.S. Commodity Futures Trading Commission (CFTC), said financial markets will only be able to channel resources to reduce GHG emissions if an economy-wide price on carbon reflects the true social cost of those emissions.
Behnam led a 34-member CFTC committee that produced a report last year on the policies needed to address climate-related risks to the U.S. financial sector.
“The conversation has changed since the Obama administration,” he said, noting the committee’s diverse group of stakeholders, from agriculture to the financial sector. “It was a very strong statement for all of them to coalesce around the importance of having a price on carbon … creating a cost such that market participants will then adjust their actions around that cost. We’ll see what happens, but I’m encouraged by the current administration’s efforts to address the climate crisis. A carbon price is going to be a high-level subject of conversation in the coming weeks and months.”
