Texas energy crisis is over for now. But its repercussions will be felt for a long time. We do not know how these discussions will evolve. But like all crises, the waves of the disturbance will take some time to reach the shores. Most importantly, the consumer bills will be a major headache for policymakers.
There are poisonous things in life like MBA, Econ 101, or conspiracy theories. Once you grab or fall into that reality, the world is shaped around these materialities. Econ 101 is a dangerous animal. Supply and demand intersect, and there is the price. If not, there are caps. For some of us, electricity markets are just another market with different dynamics.
However, there is a political economy of electricity markets, even in the most liberal markets.
In the Texas crisis, like in all crises, there are winners and losers. The economy as a science or an invention should provide us a fairer distribution of benefits and burdens than otherwise. So in a crisis, if a market design is punishing the poor more than the rich, should we accept that there is a problem in the design?
According to FT, Australian Macquarie is one of the winners of the high prices in Texas. As one of the biggest traders of gas and power in the US, the crisis boosted its profit by 300 million Australian dollars. Macquarie has also invested in Griddy Energy. The company sells electricity to Texan consumers with varying tariffs, including a floating rate tariff.
In the last couple of days, some Griddy Energy consumers have complained that their 100-150 $/month bills have soared to 5000$/month. It is nearly a 40-fold increase in consumer bills. From a liberal perspective, one may claim that the consumers should not be consuming recklessly in such a crisis environment. But is it fair to charge consumers with such high and income eroding 40-fold bills. What if the bills were just fivefold of their normal times?
Is this something that we should expect from a fair market design, that consumers should be protected at the time of crisis? That is a long discussion, but Texas will discuss it for some time.
One of the Texas electricity market designers, Bill Hogan, claimed that no market structure could withstand such stress with such extreme weather events. So he is approaching from an "extreme event" perspective. In extreme events, no market design can work. Then what is the most important part of the system that should be protected during these extreme events? We know that market will not survive.
Last week, there was an analysis about electric cars-EVs. It is claiming that EVs are more software than hardware. Therefore the mindset has to be different. That may be the reason why traditional car manufacturers find it hard to deal with EVs. You may still think that automotive consumers are hungry for gas guzzlers. The whole company strategy may evolve around it. But in the real world, the desired vehicle is a different product than what your skills can achieve with honesty and hard work.
The Texas energy crisis is a similar example of this change. The world and electricity system are changing. Climate is changing. Our designs and systems for ever more electricity supply and demand should change. We may be the kings of the past glories, but the beast waiting for our works differently in the future. As it approaches, it does tear apart our systems, rules, regulations.
Therefore, the Texas debate is expected to evolve into several discussions. One is certainly capacity markets.
The rationale for capacity markets is simple, and it is insurance for the capacity deficit. For generators, this is basic. But who protects the consumers? What is their insurance? Isn't this whole market idea is designed to serve consumers? Therefore there should be new tools for consumers to insure them against high prices. A similar consumer product should match the capacity market for generators. Otherwise, Econ 101 or Econ 401 doesn't matter.
The second one is the security of supply based on renewables. Is it possible to provide security with renewables? We do not know. We know that every generation helps during these difficult times. But can the electricity from nature's forces counter nature itself? If not, can we tweak our systems to protect consumers during those times?
The third one is markets and systems in extreme weather events. The fourth one is the consumer bills. The fifth one is the interaction of electricity markets with gas. So there is no end to different discussions.
As Keynes claims, " The difficulty lies not so much in developing new ideas as in escaping from old ones." The traditional car manufacturers are not in a deficit of wisdom or knowledge. They are exceptionally brilliant minds. But the world is changing. These minds are useless in the new realm.
The electricity system and market are brilliant inventions, but the world is different from solar, wind, and extreme weather. The change needs steps and institutions to settle. Redefining the security of supply, the economics of electricity markets, the political economy of electricity prices, and creating new mechanisms for consumer protection and benefits can be a better way. Otherwise, there is no guarantee that the crisis ends up with well-informed discussions with beneficial results. There is no guarantee that it will end well.