Record cold from Texas to Alberta, Canada, is straining the electricity grid, causing operators to plead for conservation. No one likes grid uncertainty, but this time the weather, not renewables, deserves most of the blame. Investors don’t seem to care: Utility stocks are down away.
Texas grid operator Ercot, short for Electric Reliability Council of Texas, praised customers midday Tuesday for heeding its request to cut their usage during peak times, such as early morning. One suggestion: Set the thermostat to 65 degrees or lower if no one is home.
In Dallas, Tuesday’s temperatures were expected to range from 12 degrees to 26 degrees—far below the typical 36-to-55 range. The mercury is expected to climb to a high of 52 by Thursday.
The Arctic blast pushed demand to a January record-setting level for Ercot. On Sunday, usage hit 70,982 megawatts in the 8-to-9 p.m. hour, smashing the previous mark of 65,915 megawatts set from 7 a.m. to 8 a.m. on Jan. 17, 2018.
Electricity is different from other goods. There isn’t any inventory on the shelves to sell when demand rises.
Utilities have to have to plan for peak usage—and sometimes they’re flat-footed. In 2021, for example, extreme cold pummeled Texas. Wind turbines froze and natural-gas production declined, causing significant outages in the Lone Star state. Texas generates roughly 60% of its electricity from natural gas and 20% from renewable sources, including wind.
Today, Texas has roughly 94,000 megawatts of generation capacity. Available capacity can be lower if the wind isn’t blowing.
”Wind and solar [power generation] tend to act as a single plant—when it’s sunny or windy, all of the capacity turns on, regardless of whether the power is needed at that particular moment or not,” says Reaves Asset Management CEO Jay Rhame. That variability is a factor utilities have to contend with as renewables take a larger share of total generation capacity, he adds.
Low-wind conditions are part of the issue Texans are facing this week. So far, utilities such as
CenterPoint Energy
and
American Electric Power,
or AEP, aren’t shutting customers off.
On Friday, CenterPoint asked customers in Minnesota to conserve electricity. In Alberta, where temperatures plummeted below minus-40, the Alberta Electric System Operator, or AESO, pleaded for conservation, too.
Albertans cooperated. After the notice, demand dropped 200 megawatts “within minutes.” Peak demand was roughly 12,000 megawatts; without any response, it could have been roughly 2% higher.
Alberta’s electricity generation mix is similar to Texas’, with about 60% from gas and 20% from wind power. Alberta’s balance is made up of coal, solar, and other assets. It has about 16,000 megawatts of generating capacity—about 3,200 from wind.
Like temperatures, AEP and CenterPoint shares are down. Investors could be nervous about reputational damage from potential weather-induced outages. AEP closed down about 0.6%. CenterPoint dropped about 0.2%. The
S&P 500
fell 0.4%.
If the grid, and the utilities, make it through the deep freeze, the stocks should claw back some of those losses.
Write to Al Root at [email protected]
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