The Texas Power Paradox

On July 2nd, the Texas power grid did something extraordinary: it shattered its all-time record peak, surging past 91,000 megawatts (91 GW). Even more surprising? ERCOT kept the lights on and prices remarkably low, all while adding almost no new fossil fuel capacity.
But as demand continues to skyrocket, is this grid stability a sustainable reality or a temporary dream?
In this episode, we go behind the scenes of the ERCOT dashboard to analyze exactly how Texas is surviving the summer heat, the secret weapon keeping wholesale prices in the $20 range, and the massive hurdles looming on the horizon.

What We Cover:
The 91 GW Record Smasher: Breaking down the massive July 2nd peak and how ERCOT managed the load without traditional fossil fuel additions.
The "Cowboy Hat" Grid: A look at the state's unique supply mix, where wind energy forms the nighttime brim and solar power makes up the midday crown.
The Battery Arbitrage Revolution: How Texas's rapidly growing battery fleet absorbs up to 8.5 GW of solar power in the morning and injects nearly 10 GW back into the grid during the crucial 7 PM to 11 PM evening peak.
Why Gas Generators are Struggling: How cheap solar and battery arbitrage are making it incredibly difficult for new dispatchable gas-fired plants to turn a profit.
The AI Data Center Threat & The $33B Battle: A look at Governor Abbott's recent directive to audit data centers for water and power usage, and the fierce political battle over the proposed $33 billion Permian Basin transmission expansion.

Transcript

Texas Sets A New Peak

SPEAKER_00 0:02

Today we're going to talk Texas Power Grid. I did something rather random this week, August 3rd, while thinking about what to talk about. Spurred by the news that ERCOT had hit its all-time record peak of over 91,000 megawatts, so 91 gigawatts, on July 2nd at 6 p.m., up from a previous record peak of 85.5 gigawatts in August of 2023, I decided to simply go to ERCOT's dashboard at around 1.15 p.m. Central. There, I saw the projected load was going to exceed the old record of 85.5 and go to just over 88 gigawatts. So I started taking screenshots, and as Rod Stewart said in the very first LP I ever bought when I was 11, every picture tells a story. The big picture here is that ERCOT smashed the record by a considerable amount, while over the same period it hasn't added any appreciable fossil fuel capacity, and yet it kept prices low and the lights

Demand Growth From Large Loads

SPEAKER_00 0:58

on. So let's have a look at what's going on with a bunch of pictures, starting with demand. And there the story is, yep, new data load, at least largely so. The latest large load working group report from June shows simultaneous peaks, that's when they all add up together, from large loads at 3,675 megawatts. So that makes up a big chunk of the distance or the difference between the old peak and the new record peak. And yet it's nothing compared to the large loads approved to energize, which exceeds 8,900 megawatts, not to mention the tens of gigawatts in the queue. So this story will certainly continue to

Supply Outlook And Muted Prices

SPEAKER_00 1:36

unfold. But let's go back to the dashboard in today's projected supply. Again, that's set to be around 88 gigawatts, as you can see here in this picture. So how will the resources meet it and what kind of prices can we expect to see? With current demand at around 115 to 82 gigawatts, there's still about six gigawatts to climb, but right now the price is astonishingly muted. Real-time averages sit in the low $20 range, as you can see, and the day ahead, where spot market prices mostly trade, they're not much different. That's largely because there's plenty of supply available

The Daily Mix From Dawn

SPEAKER_00 2:10

at present. Now let's have a look at what comprises supply mix throughout the day. You'll see that before 8 a.m., one has mostly conventional generation plus some wind energy. And in the first visual we'll look at here, we see that nuclear, shown in yellow, sits at the bottom of the pile. It runs 24-7 unless Homer Simpson's in there overseeing refueling during a scheduled outage. The rest of the time, nukes are on. Then you have your coal lignite resources in the gray. They often don't vary that much in output either, though a little bit more than they used to. On top of that, comes your natural gas in the purple. And that does the lion's share of work, especially in the morning, followed by wind and blue. Then around 7 a.m., one sees a tiny bit of battery storage released into the gray. That's shown as red. And then right around 8 a.m., Apollo starts riding his chariot into the sky, raining down photons that the solar panels across the state convert into electrons, tens of gigawatts of them. The wind falls off naturally, as it tends to be a nighttime phenomenon, and the nukes, as I mentioned before, well, they just run. But two types of assets respond to the massive solar influx every day. Gas generation backs down, as shown by the decreasing purple sliver, it'll ramp up in the evening, and the rapidly growing fleet of battery storage resources begins to absorb a good chunk of that solar energy. By 8 a.m., those batteries are absorbing almost 8.5 gigawatts of energy from the sun. That's almost 10% of the peak load later in the day. By 1 p.m., solar makes up over 40% of the Gen mix. Wind now sits at 6%, gas is close to 47%, and coal and nukes handle the other 15% or so. Storage, meanwhile, is nearly fully charged by early afternoon and moves into a nearly neutral position, absorbing, in this case, only 275 megawatts around 1 p.m. It's getting ready for the party in the evening.

Wind Plus Solar Makes A Cowboy Hat

SPEAKER_00 4:10

This is what the day prior, August 2nd, looked like. So you can see where this will be going for the remainder of August 3rd. One more thing we'll look at before we spend a little more time on storage, and that's the combination of wind and solar, those renewable resources. Rurkoff's dashboard shows the combined impact. Being Texas, of course, the combined impact has to look like a cowboy hat, with the wind tailing off in midday forming the brim, and solar making up the crown of that hat. That's pretty typical, especially for summer, although I've seen the combined shape sometimes resembling a bowler or derby at other times.

Batteries Balance And Shift Energy

SPEAKER_00 4:45

Now let's have a look at storage. Notice by early afternoon, storage is pretty much done sucking energy from the grid, about 8,500 megawatts at its height. The little squiggly lines show that storage is also providing valuable grid balancing services as well. Lithium batteries excel at managing frequency, rapidly absorbing releasing energy on a signal faster than conventional resources can. And that was the first use cases in the grid before solar came in and made energy arbitrage opportunities so attractive. The first lithium-ion batteries pretty much did grid balancing services. Yesterday's battery curve will show us what to expect for the remainder of August 3rd. The batteries pretty much stayed in a neutral state, except for grid balancing in the early afternoon, and then they inject close to 10 gigawatts of energy back into the grid over that 7 p.m. to 11 p.m. period. A look at projected pricing will show you why. If you can charge in the morning for some $15 to $20 per megawatt hour and release into the evening peaks in the high $40 range, a 10% loss in the round trip cycle of that battery doesn't hurt you that much. We can look at California and see where this was going. They were the first grid with lots of solar influx. Duck there, cowboy hat here. Hourly price formation is dramatically impacted by solar. And where the duck lands, batteries come to roost as well. Okay, so that's the snapshot for today's grid in places that are seeing more solar, which is now the dominant renewable asset being added to the grid as prices fall.

Reliability Risks And Gas Economics

SPEAKER_00 6:22

So this current mix in Texas could probably keep prices pretty low and pretty stable as long as one doesn't have an extended renewable energy drought in the most highly solar-saturated areas. Lots of clouds and rainfall can cut production by 50% or more. But with prices being muted by the combination of solar and batteries, it's a pretty inhospitable landscape for adding new dispatchable gas fire generation that comes with carbon emissions, yes, but can be fired up anytime to meet system demand. But it's hard for those gas generators to make money when prices are as low as they are in Texas, even on the hottest days. That's when one used to expect the pricing windfalls. So this current situation may work for the status quo, although there's really no such thing because both the demand and the supply side keep evolving.

Data Centers Drive The Next Challenge

SPEAKER_00 7:11

The real issue now for Texas is the massive anticipated demand growth from AI-driven data centers. And that load may exceed the demand currently being served at some point in the visible future. Governor Abbott this week just threw a bit of a monkey wrench into the works when he directed the Public Utility Commission and ERCOT to audit all new data centers for water and power use as well as tax impacts. But we'll probably see fairly significant low growth of data centers over a fairly compressed timeframe, even with this new action from the governor. Assuming that any significant low growth does occur, then the question arises: how will the resource mix grow to meet it? And how will those new resources be added to the grid?

Transmission Fight And What Breaks Next

SPEAKER_00 7:53

Texas was planning a massive $33 billion expansion and still is, of 765 kV transmissions superhighway complex that would serve data loads in the growing oil industry and gas industry in the Permian Basin. But conservative landowners are fiercely opposing this expansion, and leading politicians are backing them up, calling for transmission applications to be denied until all concerns are addressed. Meanwhile, there's plenty of renewable assets in the supply interconnection queue and some gas turbines, but not many, waiting to be interconnected to the existing grid. If the transmission doesn't get built and new assets don't get connected, then today's stability and low prices could be a dream from the past in just a few short years.

Wrap Up And Key Warning

SPEAKER_00 8:40

Well, thanks for watching, and we'll see you again soon.