Author: Doug Gavel
CAMBRIDGE MA. – William Hogan, the Raymond Plank Research Professor of Global Energy Policy at Harvard Kennedy School and director of the Harvard Electricity Policy Group, outlined the causes and consequences of the recent Texas energy crisis in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. Listen to the interview here. A transcript of the interview is avaialble here.
Hosted by Robert N. Stavins, A.J. Meyer Professor of Energy and Economic Development at Harvard Kennedy School and director of the Harvard Environmental Economics Program and the Harvard Project on Climate Agreements, Environmental Insights is intended to promote public discourse on important issues at the intersection of economics and environmental policy.
The Texas energy crisis unfolded in mid-February when a convergence of winter storms produced record-cold temperatures across much of the central part of the United States, reaching as far south as the Lone Star State. The sustained cold and ice caused significant damage to the energy infrastructure in Texas, knocking down transmission lines, freezing gas pipelines and pumps, severely pinching supplies, and creating blackouts throughout much of the state. At the same time, the exceptionally cold weather resulted in spiking demand, as electric heating was cranked up by consumers. Hogan described the scale, scope, and duration of the crisis as “unprecedented,” akin to a one-in-one-hundred-year event.
“It's a very tragic situation. Terrible. And when you're dealing with systems like this, you can plan for some things. And then, when you get outside the envelope, you're in trouble,” he said.
The situation resulted in a severe energy supply/demand imbalance during which hundreds of thousands of homes and businesses were left without power for days, and some of those who remained on the grid were at risk of receiving extremely high electricity bills because they had previously opted for contracts which passed on wholesale costs plus a relatively small monthly charge.
Some observers have pointed fingers at Texas’ relatively less regulated energy market as the culprit for the crisis that unfolded last month, but Hogan largely disagrees.
“One of the claims that has been very popular in certain press articles is that Texas has a free market in electricity. And you can't have a free market in electricity because of problems like this. And that's a mischaracterization of what has happened in Texas,” he said. “There are differences in the level of choice. But there are also reliability conditions, operating reserves that are imposed, transmission constraints that you have to respect. So, it's a complicated mix of engineering and economics. And you have more choice, perhaps, in Texas than you have elsewhere. But I think it's a mistake to characterize it as just having no regulation."
Hogan agreed that the Texas energy grid is not equipped to withstand such pronounced and sustained cold snaps as the one in February, but he argued that the state’s electricity market design, which is highly responsive to typical changing supply and demand conditions under normal circumstances, is one that is being replicated in other parts of the country.
“You see evidence in the Western energy imbalance market that's expanding rapidly because of the pressure coming from renewables. And you see the Southeast electricity and energy market proposed a couple of weeks ago, which is trying to accelerate the amount of trading and the amount of market operations. All of these things are moving in the direction of the Texas energy market,” he said. “So, they're going that way because of the intermittency problems and challenges that come from renewables.”
In general, Hogan concluded, the Texas electricity market design isn’t “as broken as people have claimed.”
Hogan’s interview is the 21st episode in the Environmental Insights series, with future episodes scheduled to drop each month.
“Environmental Insights is intended to inform and educate listeners about important issues relating to an economic perspective on developments in environmental policy, including the design and implementation of market-based approaches to environmental protection,” said Stavins. “We speak with accomplished Harvard colleagues, other academics, and practitioners who are working on solving some of the most challenging public problems we face.”