Warren Buffett’s firm is proposing an $8 billion boondoggle to prevent the next Texas blackout
Two months after snow, ice, and temperatures as low as -6° F left 4 million Texans without electricity, the fight over how to power the state’s future is just heating up.
In February, the Texas grid came four minutes away from complete collapse. Half of the state’s electricity generating capacity failed. Coal, nuclear, wind, and solar plants left gaping holes in the state’s energy supply, and natural gas left the biggest: 17,000 megawatts. The outage left at least 100 people dead, and $90 billion in damages. It also sparked interest in building more power plants to guard against the next one. Last week, Warren Buffett’s Berkshire Hathaway Energy subsidiary pitched one of the ambitious proposals yet: Build 10,000 MW of natural gas plants with on-site fuel storage.
Berkshire, which operates 21,860 miles of natural gas pipeline stretching from Texas to the Canadian border—part of the country’s largest interstate natural gas pipeline system—is pitching the state legislature on a “Texas Emergency Power Reserve.” The company would build and maintain 10 plants ready to supply electricity when needed. In exchange, the famously free-market Texas would fork over “capacity payments,” as well as a guaranteed 9.3% rate of return on Berkshire’s $8.3 billion investment in new power plants, on-site storage, land, and support facilities. If approved, the deal would will cost Texans at least $3 per month per utility customer (and $60 a month for industrial users) over the next 40 years, according to Berkshire.
According to the company, its plan could meet about half the demand lost during the recent storm, and would limit all power outages to three hours by 2023. But while industry experts haven’t yet agreed on the best way to prevent the next catastrophic blackout, many share one opinion: It would not look anything like Buffett’s plan for Texas.
Berkshire Hathaway Energy
What should Texas do?
The last century of electrification has boiled down to a simple equation: When demand rises, build more power plants. But focusing primarily on more capacity is outdated, says Daniel Brooks, an engineer leading integrated energy planning efforts at the Electric Power Research Institute (EPRI), an industry research organization. In a world in which every car could be a battery and every home a solar power plant, the electric grid is really an evolving system of transmission, generation, storage, and demand. “You’re not going to have optimal investments if you consider them in isolation,” says Brooks.
And Texas may not need to build any new generation at all, says Eric Gimon, a researcher at the energy and environmental policy firm Energy Innovation. The first step, he says, is simply preparing for winter. Since the freezing cold caused gas wells, pipelines, and wind turbines in Texas to seize up, talk has turned to hardening infrastructure to withstand extreme winter temperatures. Gimon estimates it would take about $750 million to winterize the state’s approximately 25 gigawatts of wind turbines. (The much larger natural gas system, the source of most of Texas electricity in the winter, would cost about $6 billion.) One study by Vibrant Clean Energy (pdf) found that winterizing wind turbines with battery storage could have prevented outages entirely this February.
“It would be a no-brainer to weatherize the wind and solar fleet,” Gimon says. “It’s pretty cheap and would more than pay itself for the few times you need it.”
Demanding less electricity, more reliability
But that’s just the supply side of the equation. The most cost-effective solution? Adding cellulose and fiberglass insulation to homes. “I’d spend as much money as possible in upgrading housing stock because it doesn’t matter what electricity mix you have, the insulation still delivers,” says Gimon. All those measures should be taken “before even starting on the supply side,” he said.
Most Texas homes, built before building codes, are minimally insulated. As a result, they consume far more electricity than necessary to stay warm in winter and cool in the summer, pushing millions of residents into energy poverty (pdf). Adding to the problem are outdated, inefficient electric resistance heating systems, which use coils similar to electric stoves. During extreme weather, they dump demand enormous demand onto the grid when it’s least able to handle it.
For Buffett’s $8 billion, Gimon estimates Texas could weatherize about 1 million homes, potentially shaving enough load to avert the February collapse through those measures alone. To increase the system’s resiliency, transmission lines and battery storage could be added: $8 billion dollars would deliver about 20 GW of battery storage, while transmission lines connecting ERCOT to adjacent grids would cost about $2 billion (pdf).
Everything’s bigger in Texas
Texas designed its own electricity grid. The US mainland is effectively divided into two major regions—the Eastern Interconnection and the Western Interconnection—comprised of more than 6,500 power plants and 100,000 miles of high-voltage power lines. But Texas effectively seceded from the rest of the country’s grid after 1935, when Congress passed the Federal Power Act to allow it to regulate electricity transmission between states. To avoid most federal regulations, utilities banded together, eventually forming the Electric Reliability Council of Texas (ERCOT), which serves over 26 million customers, and physically isolates its electrons from the rest of the country.
EPA
While that succeeded in averting some federal regulations, Texas’s old playbook hasn’t worked as well since market forces began rewriting the rules of the energy game. Enormous pressure is building on the state to strengthen its grid, and meet electricity demand that surged 35% between 2001 and 2019, an increase triple the national average. Texas, already one of the most competitive electricity markets in the country, has also welcomed new sources of energy that can compete on price, something wind and solar are doing quite well relative to fossil fuels.
Berkshire Hathaway Energy recognized the market won’t pay for its proposal, hence its request for legislature approval of the $8 billion investment (the company did not respond to multiple press inquiries). New natural gas “peaker plants,” similar to the “emergency” power plants being proposed, only run during periods of peak demand—a few days or even hours per year. Even when wholesale power prices spike to $9,000 per megawatt-hour, the maximum allowed by regulators, that’s not enough to supply such a massive investment in emergency power.
Complicating matters, US president Joe Biden’s new $2 trillion infrastructure plan proposes a renewable fuel standard that threatens new fossil fuel generation. Batteries are eroding the economics of natural gas as well, outcompeting peaker plants for short-term electricity (around four hours now, and soon offering 10 to 12). Tesla’s 100 MW Hornsdale Power Reserve battery project in Australia, installed after a massive blackout in 2016, has outperformed expectations, racking up $88 million in savings and even providing five hours of power during a November 2019 outage.
Just as we don’t build 20-lane freeways to manage traffic in case there’s an accident, argues energy economist Jim Lazar, there are better ways of managing demand. “A capacity market is no solution to any of Texas’s problems,” Lazar said during a conference on the Texas blackouts. “Markets can only deal with extreme conditions up to a point. We can’t really solve all problems like this exclusively on the supply side, and we should not try.”
Building the next grid
The debate in Texas is indicative of a wider challenge, says EPRI’s Brooks: By narrowly focusing on matching supply with demand, America is still not planning well for its energy future. In Texas, the worst-case scenarios failed to imagine what actually happened on the ground. “Planning processes have to evolve,” says Brooks.
That need will only grow as the world decarbonizes, the economy electrifies, and more of the load shifts to the grid. Cars will charge at night. Electric arc furnaces will supply industrial heat. And the risks we’re willing to accept will change. In the US, most jurisdictions still design their electrical grids with the expectation that blackouts may occur one day every 10 years, on average. By 2050, Brooks says, the share of US economic activity that relies on the electricity grid will at least double. “That’s twice the economy depending on the electricity sector,” he says. “Outages are going to have twice the impact.” Integrated planning will be needed to avert even worse disasters in the future, says Brooks, “and that’s not the way we do things now.”
The urgency is growing, because an extreme event rivaling Texas will happen again. Scientists warn climate change is a “threat multiplier” responsible in part for the tenfold increase in major US power outages between 1984 and 2012. Each year, as the warming climate makes floods, droughts, heat waves, and storms more intense and more frequent, the threat of collapse rises as well. One study projected that by the end of the century, the flooding that inundated New York during Superstorm Sandy in 2012, a one-in-500-year event, is set to be repeated every four years.
The rest of the country, predicts Alison Silverstein, a former official with the Federal Energy Regulatory Commission (FERC) and Public Utility Commission of Texas, may soon feel the pain experienced in Texas. “I know Texas has an attitude and I know the rest of the nation is enjoying some schadenfreude that we screwed the pooch here,” Silverstein said during a recent webinar, admitting the state’s preparation could have been “infinitely better.” But “let’s remember that many of the things that went wrong here, y’all haven’t fixed outside of Texas either. The rest of the nation has done a terrible job….conceiving of the magnitude of the disasters and the ferocity of extreme weather events.”
