Profitability and investment risk of Texan power system winterization

Katharina Gruber (), Tobias Gauster, Gregor Laaha, Peter Regner and Johannes Schmidt
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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

Nature Energy, 2022, vol. 7, issue 5, 409-416

Abstract: 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.

Date: 2022
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DOI: 10.1038/s41560-022-00994-y

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