Fragile grids and green ambitions: time for Texas to lead with tech?

Posted: 04 Mar 2021

If recent global events have taught us anything, it’s that the world can change in profound ways, very quickly. 

In the past twenty years, extreme weather and natural disasters have overwhelmed even the world’s most developed energy systems. This month marks ten years since a quake-tsunami hit the Fukushima nuclear plant in Japan, killing 16,000 people and shutting down all generation, leaving hundreds of thousands homeless and without power. Since then, wildfires sweeping California and Australia have damaged and destroyed transmission lines, causing widespread power outages. And only last month, still in the clutches of a global pandemic, over 4 million people in Texas woke in the night to record-low temperatures and no power as rolling blackouts prevented complete grid shut down. 

These events reveal the fragility of power systems all over the world when hit by freak weather, weather that will only become more frequent and extreme if climate change stays on course. Ultimately, we cannot control nature. We can, however, strengthen the resilience of our energy systems by fundamentally redesigning how we generate and manage energy, while at the same time transitioning to net zero. 

 

The Texan grid

In many ways, the Texan electricity market is comparable with the UK’s. Both have a current maximum demand of around 60GW – peaking in summer for Texas and winter for the UK – and renewables make up approximately 20% of the generation mix. However, while the UK generates and uses most of its own energy, 9% is still imported from Europe. Meanwhile, Texas is mostly maintained as an independent ‘energy island’, with very limited connections across its borders. 

Texas was also one of the first markets to become privatised and competitive but unlike other markets is considerably less regulated. For example, the UK’s National Grid ESO facilitates various products and mechanisms (Capacity Market, Response Products, Reserve Products etc.) that ensure reserves can be leveraged if needed. Similar structures do not exist on the Texan grid, so while there is great freedom in its market, it has fewer back-up resources to help mitigate issues that arise.

The recent incident in Texas was a perfect storm. The state’s lack of interconnectivity and summer-centric operation meant that some generators were idle and could not be switched on due to non-weather proofed pipes freezing over. The nature of its market design and absence of a capacity market also inhibited its ability to respond to the sharp rise in demand and shortage of supply. 

 

Swinging prices: an increasing trend

Further, historic data patterns reveal how last month’s incident in Texas was not an anomalous occurrence. In fact, Texas’ energy prices spiked to $9,000/MWh (compared to an average of $110/MWh) back in 2019, but on that occasion it was due to soaring high temperatures triggering a sudden surge in air conditioning use. The graphs below show the increasing frequency of wholesale energy price spikes in Houston in recent years.

The reality is that market volatility caused by unpredictable weather patterns is an increasing international trend across markets that are actively integrating more renewables. For example, in the UK, there have been over 300 periods of negative pricing in the last year alone (triple that of 2018). This is primarily due to high output of renewable generation on the grid compounded by changing demand in lockdown. Contrastingly, in January 2021 a cold snap pushed prices up to 48 cents per kWh, 40 cents higher than typical rates.

 

During the same month in Japan – another iconic island grid – cold weather triggered its worst electricity crunch since the aftermath of the Fukushima crisis. It led to extremely high electricity prices as demand spiked and the system had to resort to oil and coal to avoid grid breakdown.

The good news is that although controlling the weather is out of our hands, we can take control of demand. This is being made possible by digitising, connecting and optimising millions of distributed, low carbon devices – creating a whole new dimension to our energy systems. 

 

But first, a quick history lesson

In 1891, the world’s first centralised coal fired power station went live in the UK. It ushered in a new form of power for the 20th century and, remarkably, the model developed then still dominates power systems today. Centrally generated electricity, a linear distribution network, and customers at the end of a very long wire. 

It has meant that every electrical system around the world has been built on one underlying truth – it is impossible to store electricity economically. 

 

Digital revolution

In the last ten years however, the energy storage market has boomed. As well as grid-scale batteries, devices such as electric cars, heating systems and storage batteries in people’s homes can now store abundant green energy for use later in time, when demand increases. In effect, this network of millions of devices produces a giant distributed battery spanning vast geographies, allowing us to capture green generation whether in demand or not. 

But new technology is taking us one step further. Advances in data-enabled software and AI are making it possible to intelligently manage the movement of energy from the grid to devices and even back to the grid via vehicle-to-grid (V2G) chargers. Leveraging real-time data including wholesale energy prices, supply and demand levels, and weather forecasts, smart platforms can optimise device charging for when it is cheapest and greenest.  

This digital innovation unlocks new opportunities for energy systems as they manage increasing grid volatility caused by the integration of more intermittent renewables and millions of EVs and other electric devices. By using the energy stored in devices to increase supply, or delaying charging so to reduce demand, energy storage and intelligent management helps reduce the ‘peakiness’ of demand on the grid and consequently reduces the risk of imbalances and outages. 

Taking Texas as a recent example, green reserves in cars, storage batteries and heaters across homes, if optimised by smart technology, could have smoothed out the demand peaks that led to rolling blackouts and potentially have enabled more homes to stay on supply.

 

The opportunity for Texas

Of course, technology would not have solved all aspects of the challenges the state faced a few weeks ago, but the nature of its current system makes it well equipped to utilise smart optimisation. For example, over half of Texas’ 9.6 millions homes already use electricity as their main source for heating and the market has the required levels of data granularity needed to inform the intelligent control of devices in line with the grid’s needs. By utilising intelligent software and implementing the right mechanisms, the load from these heaters can be managed to reduce the overall electrical heating load in Texas by up to 9 GW. And in instances of extreme weather where the network reserves are low, this could play an important role in mitigating the effects of imbalance. Similarly, air conditioning units could be leveraged to create grid flexibility during the summer.  

The state’s very lack of regulation and connectivity means it is uniquely positioned to leapfrog much of the journey other markets are now undertaking in digitising their systems. 

As cloud-based software, smart optimisation platforms do not require the same physical infrastructure that underpins electricity systems today, saving on costly reinforcement. It also encourages the use of locally-generated energy, reducing the need for more sprawling infrastructure that is prone to damage in extreme weather as we saw when pipelines to Texan generators froze. 

Texan customers stand to be better protected and even financially rewarded too. By allowing technology to manage their device charging, new services and tariffs can be designed by their energy suppliers. For example, EV charging tariffs that give customers a cheap, flat rate regardless of what time they plug their vehicle in, offer protection against spikes in wholesale prices which we saw skyrocket from $50 to $9,000 per MWh across the state. If Texas wants to seriously decarbonise its grid, then making the transition affordable and accessible for consumers will be essential. AI that does the hard work for them will help ramp up the adoption of low carbon technology.

 

A pivotal moment

Today’s grids are still anachronistic, fossil fuel-centred systems. They have been built over many, many decades and it will take time to untangle them. New markets, incentives and governance will be needed in order to transition successfully to systems that are effective and zero carbon. Although no silver bullet, digital innovation can play a crucial role in smoothing out volatility and keeping the lights on when inevitable grid constraints occur. 

No doubt, 2021 will see more examples of grids struggling to grapple with the elements and changing demand. However, if in this moment of reflection and recovery, Texas decides to digitise, it could prove a pivotal moment for energy systems everywhere. 

About the Author

Marzia Zafar

Head of Customer Policy & Strategy

Marzia brings a wealth of Energy and Policy experience to Kaluza having spent over 20 years working on policies and strategies to enable the energy transition for regulators, business and not for profit sectors. In her most recent role, Marzia was Director of Insights at the World Energy Council and led a team of global energy experts on unlocking opportunities related to the energy transition. Prior to that, Marzia worked for Sempra Energy in Los Angeles and was a policy advisor for California’s energy regulator in San Francisco. Here she was instrumental in their smart meter roll out and in the early regulatory work to help legitimise ride sharing companies including Uber and Lyft. In her new role as Kaluza’s Head of Customer Strategy & Policy, Marzia will ensure that the consumer remains at the heart of the transition to a decarbonised energy system. Marzia has a degree in Business and Accounting from San Diego University, California.

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