Nature messed with Texas. Now what? Here are two fun facts for you. First, the “Don’t Mess With Texas” slogan actually derives from a campaign aimed at reducing littering on Texas roadways, even though the slogan has taken on a life of its own. Second, Texas is the largest producer of renewable energy in the country. The state is the #1 producer (by far) of wind energy and #5 producer of solar energy, and in 2019 renewable energy made up 20% of Texas’ total consumption. It’s therefore no surprise the initial reaction to last week’s freeze and the virtual collapse of the Texas power grid was a lot of after-the-fact finger pointing. Some pointed to an overreliance on renewable power generation as the primary culprit, others blamed natural gas pipelines or an aging power grid, while others pointed to the global phenomena of climate change. Almost everyone blamed Texas’ grid regulator ERCOT, where at last count six directors have resigned. But in the end nature doesn’t care who is to blame, and it’s therefore incumbent upon us as a society to implement a rational energy policy that takes advantage of this country’s enormous resource wealth.
Let’s examine what happened in Texas during the great winter storm of February 2021, where sustained sub-zero temperatures and heavy snowfall persisted for roughly a week. The storm wasn’t a surprise as meteorologists (insert joke) predicted the coming freeze, an early warning that pushed natural gas producers to shut-in wells to protect expensive infrastructure against freeze damage. Natural gas supply outside Texas is already committed to handling winter needs elsewhere in the country, so Texas was unable to import natural gas. On top of that, the great surplus of domestic natural gas disincentivized the construction of new natural gas storage over the past decade, resulting in a “just in time” delivery network that increases supply shock risk. So, when freezing temperatures reached Texas, natural gas supply was already at the brink of its capacity. When wind turbines froze, snow covered solar panels, and nuclear power shut down for fear frozen water wouldn’t cool reactor cores, there was nothing left for the grid to do but ration supply. This rationing exacerbated the problem because power was cut off to compressor stations that propel long-distance natural gas volumes, causing that supply source to also freeze and trapping even more natural gas. Meanwhile, procuring electricity from outside Texas is not possible because ERCOT is self-contained to avoid federal oversight. The end result was widespread outages across Texas that only a thaw several days later could alleviate.
Source: Power Outage USA
In a perfect world we come together as a family and solve this issue so it doesn’t happen again, but once politicians get involved the conversation becomes less constructive. So what do we do about this? Mandating renewables to protect against all weather outcomes would greatly increase the costs associated with renewable energy in a world where acceptance depends on the continued reduction in cost. It’s logical that Texas didn’t winterize because it is a southern state with southern weather climes, and its focus is rightfully on protecting the grid against extreme heat and not extreme cold. Would you expect Alaska to protect its energy infrastructure against >100 degree heat?
Source: Washington Post
Perhaps all that’s needed is a rational conversation on energy policy. We’re obviously big believers in renewable energy and the decarbonization movement, but we’ve long said that energy policy should include fossil fuels until society can effectively manage the unreliability of renewables. Keep in mind the primary reason the United States has cut emissions over the last 15 years is because natural gas has replaced coal, and the market drove this. Similarly, it’s the market that is driving down renewable costs to the point where solving reliability issues is not a pipe dream.
Nature messed with Texas, and the irony is that even as we get better at harnessing nature’s energy we are still very susceptible to nature’s tantrums. But this is a learning opportunity for us, and instead of assigning blame we propose a solution. This country and the world needs to invest more in infrastructure. We need more natural gas infrastructure, oil infrastructure, solar infrastructure, wind infrastructure, electric grid infrastructure. Infrastructure, infrastructure, infrastructure. To quote another American slogan: Go Big Or Go Home.
RENEW Performance Tracker
Source: Bloomberg *Please review disclosure information at the end of this post.
No, Wind Farms Aren’t The Main Cause Of The Texas Blackouts
Texas Blackouts Warning To Biden And All Of Us: Renewables Do Play A Role In Grid Problems
Texas Freeze Casts Renewable Energy As Next Battle Line In US Culture Wars
India’s Largest Renewable Energy Company Gets SPAC Deal Backed By Palihapitiya Funding
Brookfield Pursues $7.5 Billion Fund Devoted To ‘Net-Zero’ Shift
Grid-Scale Batteries, A Key Player In The Future Of Renewable Energy In Nevada
*No Warranties. The accuracy and/or completeness of any Eagle Global Advisors index, any data included therein, or any data from which it is based is not guaranteed by Eagle Global Advisors, and it shall have no liability for any errors, omissions, or interruptions therein. Eagle Global Advisors makes no warranties, express or implied, as to results to be obtained from use of information provided by Eagle Global Advisors and used in this service, and Eagle Global Advisors expressly disclaim all warranties of suitability with respect thereto.
You Must Make Your Own Investment Decision. It is not possible to invest directly in an index. Index performance does not reflect the deduction of any fees or expenses. Past performance is not a guarantee of future returns. You should not make a decision to invest in any investment fund or other vehicle based on the statements set forth in this document, and are advised to make an investment in any investment fund or other vehicle only after carefully evaluating the risks associated with investment in the investment fund, as detailed in the offering memorandum or similar document prepared by or on behalf of the issuer. This document does not contain, and does not purport to contain, the level of detail necessary to give sufficient basis to an investment decision. The addition, removal, or inclusion of a security in any Eagle Global Advisors index is not a recommendation to buy, sell, or hold that security, nor is it investment advice.