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Profitability and investment risk of Texan power system winterization

Author

Listed:
  • Katharina Gruber

    (University of Natural Resources and Life Sciences)

  • Tobias Gauster

    (University of Natural Resources and Life Sciences)

  • Gregor Laaha

    (University of Natural Resources and Life Sciences)

  • Peter Regner

    (University of Natural Resources and Life Sciences)

  • Johannes Schmidt

    (University of Natural Resources and Life Sciences)

Abstract

A lack of winterization of power system infrastructure resulted in substantial rolling blackouts in Texas in 2021, but debate about the cost of winterization continues. Here we assess if incentives for winterization on the energy-only market are sufficient. We combine power demand estimates with estimates of power plant outages to derive power deficits and scarcity prices. Expected profits from winterization of a large share of existing capacity are positive. However, investment risk is high due to the low frequency of freeze events, potentially explaining the under-investment, as do the high discount rates and uncertainty about power generation failure under cold temperatures. As the social cost of power deficits is one to two orders of magnitude higher than the winterization cost, regulatory enforcement of winterization is welfare enhancing. Current legislation can be improved by emphasizing the winterization of gas power plants and infrastructure.

Suggested Citation

  • Katharina Gruber & Tobias Gauster & Gregor Laaha & Peter Regner & Johannes Schmidt, 2022. "Profitability and investment risk of Texan power system winterization," Nature Energy, Nature, vol. 7(5), pages 409-416, May.
    • Handle: RePEc:nat:natene:v:7:y:2022:i:5:d:10.1038_s41560-022-00994-y
    DOI: 10.1038/s41560-022-00994-y
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    Cited by:

    1. Shu, Han & Mays, Jacob, 2023. "Beyond capacity: Contractual form in electricity reliability obligations," Energy Economics, Elsevier, vol. 126(C).
    2. Zhang, Chonghui & Wang, Zhen & Su, Weihua & Dalia, Streimikiene, 2024. "Differentiated power rationing or seasonal power price? Optimal power allocation solution for Chinese industrial enterprises based on the CSW-DEA model," Applied Energy, Elsevier, vol. 353(PB).
    3. Paul, Shuva & Poudyal, Abodh & Poudel, Shiva & Dubey, Anamika & Wang, Zhaoyu, 2024. "Resilience assessment and planning in power distribution systems: Past and future considerations," Renewable and Sustainable Energy Reviews, Elsevier, vol. 189(PB).
    4. Gu, Xubo & Bai, Hanyu & Cui, Xiaofan & Zhu, Juner & Zhuang, Weichao & Li, Zhaojian & Hu, Xiaosong & Song, Ziyou, 2024. "Challenges and opportunities for second-life batteries: Key technologies and economy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 192(C).
    5. Hennig, Roman J. & de Vries, Laurens J. & Tindemans, Simon H., 2023. "Congestion management in electricity distribution networks: Smart tariffs, local markets and direct control," Utilities Policy, Elsevier, vol. 85(C).
    6. Yu, Min Gyung & Mukherjee, Monish & Poudel, Shiva & Bender, Sadie R. & Hanif, Sarmad & Hardy, Trevor D. & Reeve, Hayden M., 2024. "A valuation framework for customers impacted by extreme temperature-related outages," Applied Energy, Elsevier, vol. 368(C).
    7. Han Shu & Jacob Mays, 2022. "Beyond capacity: contractual form in electricity reliability obligations," Papers 2210.10858, arXiv.org.
    8. Hanif, Sarmad & Mukherjee, Monish & Poudel, Shiva & Yu, Min Gyung & Jinsiwale, Rohit A. & Hardy, Trevor D. & Reeve, Hayden M., 2023. "Analyzing at-scale distribution grid response to extreme temperatures," Applied Energy, Elsevier, vol. 337(C).

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