The Bridge - Southern Spirit Aims to Bolster ERCOT Power Grid While Preserving Its Independence

If all goes to plan, Texas’s isolated power grid will one day be connected to a pair of neighboring states via a massive transmission line called Southern Spirit. The project is designed to increase grid reliability, reduce blackouts and drive down energy bills, but it could be years before it becomes a reality. And while the transmission line will connect Texas with Louisiana and Mississippi, it is more akin to a drawbridge that can be raised or lowered as needed without subjecting the Electric Reliability Council of Texas (ERCOT) grid to federal oversight. In today’s RBN blog, we’ll discuss what the Southern Spirit transmission line would mean for Texas. 

Let’s begin with a quick refresher on the Texas electricity grid, which is unique. For starters, ERCOT,  which manages about 90% of the electric load in Texas, operates independently and doesn’t cross state lines, which means it isn’t subject to regulations administered by the Federal Energy Regulatory Commission (FERC) — which is exactly how Texas likes it. In addition, ERCOT is an energy-only market, where electricity generators — including nuclear units, coal plants, gas plants, wind farms and solar facilities — are paid only for the energy they provide. In a capacity market, the dominant type of system in other organized power markets, generators are also paid a fixed fee to guarantee that their power will be available when needed. The Public Utility Commission of Texas (PUCT) has long relied on high scarcity pricing (i.e., occasional electricity prices of hundreds or even thousands of dollars per megawatt-hour, or MWh) to help ensure that sufficient dispatchable, flip-on-a-switch generation is available during periods of high demand.

As we wrote in Electric Avenue, between 2006 and 2011 — a period when peak demand increased by almost 8 gigawatts (GW), dispatchable generating capacity in ERCOT decreased by roughly 3 GW — 7 GW of older natural gas-fired generation was closed, partially offset by approximately 4 GW of coal and nuclear additions. ERCOT experienced rolling outages twice in 2011 during extreme weather events, after which the PUCT approved gradually increasing the systemwide offer cap — or the maximum price paid to generators during scarcity pricing — to $5,000/MWh in 2013, $7,000/MWh in 2014, and $9,000/MWh in 2015 to help ensure there would be enough dispatchable generation around to deal with demand spikes. But higher scarcity pricing failed to spur the development of additional gas-fired resources. Between the winters of 2011-12 and 2021-22 — a period that included the chaos caused by Winter Storm Uri (see Terminal Frost) — thermal generation fell by an additional 3 GW, intermittent wind and solar capacity grew by leaps and bounds, and peak demand grew by more than 9 GW, leaving the ERCOT system increasingly vulnerable to extreme weather.

ERCOT’s stand-alone status — its lack of significant transmission connections to other states — means it can’t easily turn to its neighbors for extra power when needed, making it vulnerable to power-supply disruptions. Still, Texas officials have been adamant that adding a transmission link to a neighboring grid to boost reliability is possible — as long as the state is free from federal oversight and the cost of paying for it. PUCT Chairman Thomas Gleeson said on October 4 — the day after the U.S. Department of Energy (DOE) announced it would provide $360 million in funding for the Southern Spirit project — that the Texas grid will still operate without federal government oversight, even though the new line would cross multiple state lines. Pattern Energy, an independent power developer responsible for the bulk of financing for the $2.6 billion project, said it has acquired about half of the rights of way it needs for the project.