June 11, 2013
Houston Chronicle
John Ragan
Every day this week, Houston and most of Texas have seen highs in the 90s and West Texas has hit triple digits. This is only early June. As we move deeper into summer, temperatures will climb even more. And with higher temperatures, air conditioners in homes and businesses will begin to run almost continuously and power demand will spike. The question is: Will the state have enough power to meet the increased demand?
To help ensure Texas has the electricity it needs this summer, NRG Energy has brought back to life a large power plant, consisting of four of our oldest units. Put differently, in order to keep the lights on this week and during hot afternoons throughout this summer, we are activating 1950s technology in a 21st century economy. That's like putting your family in a very, very old car with an odometer that has rolled over too many times and then trying to drive across the country.
How did we get to this point? Three factors have combined to reduce Texas' reserve margin, the safety blanket needed to meet extreme electricity demand.
First, electricity is a unique product. Excess power generated during low- demand periods cannot be stored and saved for high-demand days. There has to be enough generation on hand the instant it is needed, no matter how much is needed.
Second, more power is needed every year because Texas is growing by more than 1,000 people every day. And these people, and the businesses that employ them, increase power demand by the rough equivalent of 300,000 new homes every year.
Third, there is little incentive for investors to build new, billion-dollar power plants because the price of electricity is so low. The low cost of natural gas, among other factors, has driven energy prices down - good for consumers in the short-term, but dangerous to long-term reliability because demand for power is growing faster than new generation is being built.
In a healthy electricity market, there is a 15 percent reserve margin in excess of the supply needed on the hottest days when our air conditioners are running hard and using the most power. This margin gives Texas enough power in case of hotter-than-expected weather or power plants tripping off line. In years past, Texas had a healthy reserve, meaning that rolling blackouts and outages have largely been avoided, with the exception of a couple of freak occurrences.
But our reserve margin is shrinking each year and we have recently seen repeated calls for emergency conservation. If we do that again - or, worse, if the lights go out - businesses that recently moved here, employ our citizens and invest in Texas will begin to question that decision and they, as well as businesses contemplating moving here, may look to states where power is more reliable.
The Texas economy is stronger than any other state's. We don't want to mess this up by creating conditions that lead businesses to believe Texas has an unreliable electric system.
The obvious answer is to build enough generation capacity to power Texas on the hottest days. NRG is very interested in building new generation, and we are currently permitting two new large units. But to move forward with new projects, market conditions must support the investment. Generators have learned a lesson from last decade's construction boom: They bet on higher returns to come, and lost big.
Knowing that the answer does not lie in reactivating 50-year-old power plants, how do we make this happen?
Texas' state government wanted to know the options, and commissioned a thorough, independent review. It determined that the most efficient method was a capacity market. This competitive addition builds on the best from the past to reduce risks to businesses and consumers from unpredictable energy pricing and availability. A capacity market instead provides a solid foundation for continued Texas growth and prosperity.
As our reserve margin dwindles, we face two choices: Hope for mild weather or move to a capacity market, which has brought new generation to electric grids in states across the country.
Who wants to bet on the Texas weather? We don't. We support the capacity market option.