The Peter Zeihan Podcast Series - Is Federal Regulation Coming to the Texas Power Grid? || Peter Zeihan

Episode Date: January 12, 2025

That innate sense of independence that every Texan comes out of the womb with has also made its way into the energy sector. With an isolated grid managed by ERCOT, Texas has found itself in an energy pickle of its own. Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/is-federal-regulation-coming-to-the-texas-power-grid

There everybody, Peter Zine here coming to you from the Austin Airport. Yesterday we talked about how California has found the new and a unique way to increase their energy in security, along with increasing prices. And today it's time to talk about the same topic in Texas. We're going to go with an electricity story today. There are three kind of megagrids in the United States, one that kind of roughly cuts down in front of the rocky line separated east from west. and then something called Aircott, which is Texas's electricity reliability group, which is basically just Texas.

And Texas has its own grid because it has a different philosophy when it comes to regulation from most others, which is a fancy way of saying they like as little as possible. But that doesn't necessarily mean that they have no regulation, and that doesn't necessarily mean their approach is working. One of the big things we've seen in Texas in recent months and years was there's not, a lot of depth or durability to the system because unless there's a very clear economic rationale for doing something on a day-by-day basis, it typically isn't done because there are going to be regulations about how long power can be offline for maintenance or redundancy in case of a storm.

And Texas is a Gulf Coast country. And so when a hurricane comes through like one did earlier this year and hit Houston, powers out for two to three weeks over much of the city. They have a much bigger problem coming up just around the corner now. There's something called a capacity market in Texas, and regulations that have been around for a while basically dissuade people from adding power to the grid unless that power is going to be used all the time. So there's a little bit of an ideological slant here,

the idea being that solar never works at night. So if you can't pass on the cost to the end user, because it can only be used half the time, that only pass on part of the cost, then maybe we won't get as much solar. Solar is doing just fine in Texas, especially out west, where it's just a brilliant economic model. But this capacity market restriction has also restricted the Texans from building what are called peaker plants. Every day, there's a certain pattern where power is in higher or lower demand. And the smart people in the electricity market have figured out a way to ramp up production for those times.

as a rule, and it's going to vary location by location, season to season. Peak demand tends to be between 6 and 9 p.m. at night when people are coming home and getting dinner and watching TV, and that it tends to drop off a cliff around 10 a.m. It doesn't pick back up until people are waking up around 6 a.m. the next day. Well, in Texas, because of this capacity market thing, they don't build a lot of plants to generate power specifically for those windows. And I don't know if you've been to Texas, but it's a high. place. And so when you have peak demand from 6 to 9 p.m., everyone's running their AC full bore, and the peak is much stronger. You add in the erratic nature of weather in Texas, whether it's the Great Plains or the Gulf Coast or the interaction in between, and they have

the most extreme variations between low and high. So if anyone needs a lot of peakers, it's going to be Texas, but the capacity market actually dissuades people from building those. So we are now in a situation where Texas has had 35 years of incredible industrial and population growth. And considering what needs to be done over the next few years, the industrial growth really needs to continue, but there's not enough electricity to power it, and the capacity market is now getting in the way. So we're probably going to get a Texas two-step of outcomes here. Number one, the Texas are going to have a series of rolling brown and blackouts as the power system fails. It's just not stable. And then second, the Texans will probably be asking the

federal government to dissolve the scene that separates Aircott from the rest of the country in order to import huge amounts of power from neighboring states. And in doing so, they're going to have to subject themselves to at least some degree of regulation from the federal government. The alternative is rolling brown and blackouts and the failure of the Texas industrial expansion model. So basically, the Texans are going to have to do something they really don't. want to do. They're going to have to ask for help from Oklahoma.