Speaker 1: This is Dana Perkins and you're listening to Switch on
Speaker 1: the B and EF podcast. So, as the saying goes,
Speaker 1: everything's bigger in Texas, and for the last few years
Speaker 1: that has also included swings in extreme weather conditions. When
Speaker 1: storm Jury hit the state in February of twenty twenty one,
Speaker 1: Texans rushed to heat their homes and the demand for
Speaker 1: electricity outstripped supply, sending prices soaring to nine thousand dollars
Speaker 1: a megawatt hour and causing blackouts At a critical moment. Urkott,
Speaker 1: the state's grid operator, brought in reforms to avoid the
Speaker 1: issue persisting, but from late June of this year, a
Speaker 1: heat wave once again caused electricity prices to a times skyrocket.
Speaker 1: So what makes Urkut and these price fluctuations so unique?
Speaker 1: And as we prepare for more extreme weather, how might
Speaker 1: the state, as an independent energy island of sorts adjust?
Speaker 1: To explain what we might be able to learn from
Speaker 1: this unique market. In today's show, I get to speak
Speaker 1: with benf's head of research for North America, Thomas Rowland's
Speaker 1: Rees and BNF's US power specialist Natalie Mandy Bratta. Together
Speaker 1: we discuss Urcot and how it operates the Texas grid
Speaker 1: and what this means for electricity prices. We also discuss
Speaker 1: Texas's growing renewable energy rollout and where solar fits into
Speaker 1: the equation, and finally, Bitcoin in Texas and how it
Speaker 1: fits into grid flexibility. As always, if you like this podcast,
Speaker 1: if you subscribe, you'll receive an update on future episodes,
Speaker 1: and if you give us a review, it'll make us
Speaker 1: more discoverable by others. But right now, let's jump into
Speaker 1: the conversation with Tom and Natalie about Urkott. Natalie, thank
Speaker 1: you for joining us today.
Speaker 2: Thanks so much. Shanna, it's great to be here.
Speaker 1: And Tom, thank you for coming on.
Speaker 3: Switched on, Thank you so much for having me.
Speaker 1: So, Tom, you've been with the business as long as
Speaker 1: I have, which is, you know, since before we were
Speaker 1: a part of Bloomberg. And for those who are listening now,
Speaker 1: I thought we would have this moment where I was
Speaker 1: thinking about saying, Tom, welcome back to the show today,
Speaker 1: But actually you haven't been on with me, and you
Speaker 1: were on one of our initial pilot episodes, which I
Speaker 1: believe may not have seen the light of day. So
Speaker 1: what is it that you're hoping to realize in today's show.
Speaker 4: Well, firstly, I hope that we can give an entertaining podcast.
Speaker 4: Then I think that so long as I'm not too boring,
Speaker 4: we should be able to do that because we're going
Speaker 4: to be talking about URKOT, the Texas power market, which
Speaker 4: is like the Wild West of power markets. Everything is
Speaker 4: just maxed out in URQUT. It's one of the most
Speaker 4: interesting things that I've had the opportunity to study in
Speaker 4: my varied career at BNFS.
Speaker 3: So I'm really.
Speaker 4: Hoping that we can convey why it's so interesting, why
Speaker 4: it's so extreme, and also maybe to make a little
Speaker 4: bit of a defense of ERCOT, because you know, one
Speaker 4: of the things we'll talk about is it's kind of
Speaker 4: fashionable to dunk on ERKOT because it's so extreme and
Speaker 4: it's Texas. Everyone loves to say, oh, those crazy Texans
Speaker 4: with their crazy power market, but it's actually been functioning
Speaker 4: reasonably well lately in very challenging conditions, and I think
Speaker 4: that's a story that is worth telling well.
Speaker 1: And I bring up the fact that you haven't been
Speaker 1: on the show yet because I almost couldn't believe it
Speaker 1: when you said it, because you're one of my favorite
Speaker 1: people to talk to about some of the more interesting
Speaker 1: things that we are covering. So one of the reasons
Speaker 1: we decided now was the right time to delve in
Speaker 1: again into this very fascinating market had to do with
Speaker 1: this recent wave of extremely warm weather across parts of
Speaker 1: the US. But we're going to talk specifically about Texas.
Speaker 1: Can you explain what happened and kind of the knock
Speaker 1: on effects to the grid.
Speaker 4: Sure, So, in early June, the weather forecasts started really
Speaker 4: shooting up to I'm now in the US and I've
Speaker 4: completely converted to speaking in terms of fahrenheit. I'm a convert, so.
Speaker 1: I'm a convert to celsius. So now I'm gonna have
Speaker 1: to calculate it on my phone while you're talking.
Speaker 4: So basically, what I've learned is the reason fahrenheit works
Speaker 4: is that anything above a hundred is like super hot.
Speaker 4: And for about two months now, Texas has had temperatures
Speaker 4: that are above a hundred during the day, and so
Speaker 4: that is really when you're in the times when heat
Speaker 4: starts to affect infrastructure, it's it's not safe.
Speaker 3: So it's it's been very extreme.
Speaker 4: And to put this in context, in the US and
Speaker 4: a lot of other power markets around the world summertime
Speaker 4: and the sort of the hottest day of the year
Speaker 4: is what they all plan for because that's when air
Speaker 4: conditioning demand is at its highest, and so it's when
Speaker 4: electricity demand is at its highest. So the combination of
Speaker 4: a sustained period of heat and that has then led
Speaker 4: to record power demand means that URKOT has really been
Speaker 4: getting put to the test over the course of this summer.
Speaker 1: And you'd reference that our cuts are particularly interesting. But also,
Speaker 1: let's say unique power market, So can you explain what
Speaker 1: is it that makes it different from let's say, other
Speaker 1: states in the United States.
Speaker 4: There's a couple of things that make it different. One
Speaker 4: is just generally across the United States power markets, the
Speaker 4: regulatory structure is a lot more varied, and you can
Speaker 4: see a lot more of hybrids between regulated and liberalized markets.
Speaker 4: Actually URKO is the least regulated, which of course everyone says, huh,
Speaker 4: typical Texas, But actually being the least regulated means that
Speaker 4: it most resembles a European power market in that generation
Speaker 4: is competitive and retail is competitive, and actually having competitive
Speaker 4: retail is somewhat rare in the US. But also is
Speaker 4: that it is an energy only market, which means that
Speaker 4: all of the incentives for say, plants that just are
Speaker 4: there for that hottest day of the year are not
Speaker 4: through things like capacity markets like you see in other
Speaker 4: markets like PJM or in GB in the UK, but
Speaker 4: it's all through a mechanism where it just says, oh,
Speaker 4: on those days is designed to have prices go to
Speaker 4: really extreme levels so that those plants can make their
Speaker 4: money in the space of a couple of hours a year.
Speaker 4: That makes it viable for them to stay online. But
Speaker 4: that means that it's it's quite volatile, and it's quite
Speaker 4: People sometimes describe it as a casino because if that
Speaker 4: day where prices explode doesn't come, then those plants don't
Speaker 4: make enough money. And if you get more of those
Speaker 4: days than you need, then those plants make way more
Speaker 4: money than they need. And ultimately the cost is passed
Speaker 4: on to consumers via the competitive retailers.
Speaker 3: And then I.
Speaker 4: Suppose the competitive retailers have this challenge of how do
Speaker 4: we offer the best deal whilst managing this risk.
Speaker 3: So that's kind of why Texas is so interesting.
Speaker 2: I'll just add on the last point you had about
Speaker 2: the energy only market. The mechanism that Urcott has are
Speaker 2: these scarcity adders, and those are happening in real time.
Speaker 2: So when reserves drop a certain threshold, Urcott adds to
Speaker 2: the power price to incentivize more power plants to come online.
Speaker 2: I think a coworker compared it to Uber surge pricing,
Speaker 2: and I say, the other uniqueness of URCOT that people
Speaker 2: remember is that it's an island grid, so it's not
Speaker 2: connected to the eastern or western connection, so when supplies
Speaker 2: are low, they can't rely on imports from neighboring balancing authorities.
Speaker 1: No ability to buy or sell any access capacity or
Speaker 1: required capacity.
Speaker 3: Correct And just.
Speaker 4: To put it in context, Natalie, what does say the
Speaker 4: power price on a typical day and how high can
Speaker 4: it go when we have these extreme prices.
Speaker 2: I'd say probably between sixty e eighty dollars per megawat
Speaker 2: and a typical day. But on these extreme days, for example,
Speaker 2: on June twenty, we saw prices go to a close
Speaker 2: of five thousand dollars per megawatt, and just on July
Speaker 2: thirty one, we saw prices to twenty three hundred and
Speaker 2: fifty dollars.
Speaker 1: What does this mean for retail customers like you and me?
Speaker 4: That's a really interesting question because it is the job
Speaker 4: of the retailers to manage this risk and offer customers
Speaker 4: a deal that is palatable. So from a customer's point
Speaker 4: of view, they should just see that their energy provider
Speaker 4: offers them a deal for certain period of time and
Speaker 4: a price by magwa hour, and those energy providers have
Speaker 4: to go into the market and procure their energy and
Speaker 4: manage this risk, and you know, the deal they offer
Speaker 4: customers is kind of a reflection of can they make
Speaker 4: a slight profit of while managing this risk. The reason
Speaker 4: I say it's interesting is because everything was so unregulated
Speaker 4: in Texas and they had competitive retail, which is somewhat
Speaker 4: unique in the US, although it's kind of commonplace in
Speaker 4: Europe and men. There was a lot of innovation and
Speaker 4: one of the very innovative ideas was a retailer called
Speaker 4: Griddy who said, you know what, rather than just say
Speaker 4: offering customers are fixed tariff, why don't we say let's
Speaker 4: just give them exposure to wholesale power prices. I either
Speaker 4: hourly market will meet that using a smart meter and
Speaker 4: build them for it, and they'll just pay us a
Speaker 4: monthly fee. And you know, you run the numbers and
Speaker 4: this would say, like in twenty sixteen, they were saying this,
Speaker 4: you run the numbers on look, look at how wholesale
Speaker 4: prices have been. That'll end up working out cheaper for
Speaker 4: you if you're okay with taking on that risk. I
Speaker 4: guess we're going to get on to talking about winter
Speaker 4: Storm Ury in February twenty twenty one, when the lights
Speaker 4: went out but prices went to these high levels. That
Speaker 4: deal worked out extremely badly in that set of circumstances,
Speaker 4: and it was because no one anticipated that something like
Speaker 4: winter Storm Ury would happen, and so these customers half
Speaker 4: the time they didn't have any power, and then when
Speaker 4: the power was on, it was costing ten thousand dollars
Speaker 4: per megawat hour or something like that, and they were
Speaker 4: ending up with bills that were tens of thousands of
Speaker 4: dollars that they couldn't possibly pay. And there are a
Speaker 4: lot of defaulting and financial pain happening off the back
Speaker 4: of this. So, in answer to your question, retailers are
Speaker 4: supposed to be innovative, supposed to manage the risk, there
Speaker 4: have been some missteps along the way.
Speaker 1: We did a podcast back in twenty twenty one after
Speaker 1: Storm Mury which was this extreme cold front in Texas,
Speaker 1: which also did cause extreme prices and actually had some
Speaker 1: really terrible consequences. What do you think between then and now,
Speaker 1: between Storm Mury so extreme cold and now we're dealing
Speaker 1: with extreme heat, how has the grid innovated, how has
Speaker 1: it changed, how is it adapted? And how is the
Speaker 1: story different this time around?
Speaker 2: I think there are too answer to that. The first
Speaker 2: one is the retail one, if you want to tackle
Speaker 2: that time, and I can talk about Urkard broadly.
Speaker 4: Sure, I mean, I suppose on the retail side, I
Speaker 4: don't think. I mean, Nanati can correct me if I'm wrong.
Speaker 4: I don't think that there has been any the major
Speaker 4: reform apart from there's just a lot more caution. So
Speaker 4: I don't think anyone in their right mind is either
Speaker 4: signing up to or selling contracts that expose customers to
Speaker 4: hourly wholesale prices, because everyone saw how badly that went
Speaker 4: in twenty twenty one, so it's it's maybe just a
Speaker 4: little bit more conservative now, and perhaps that's not a
Speaker 4: bad thing. I know we talk a lot about retail innovation,
Speaker 4: and that's part of the rationale for having competitive retail
Speaker 4: in both Europe and Texas, but maybe sometimes too much
Speaker 4: innovation is too risky, and so my understanding is that
Speaker 4: it's maybe a little bit more conventional in the way
Speaker 4: that they are are hedging the risks and then billing customers.
Speaker 2: Urkat has introduced a few changes since Winter Storm Mury.
Speaker 2: The first is like short term market changes, the major
Speaker 2: one being during Winter Storm Muri, your price is went
Speaker 2: to nine thousand dollars per megawatt. That was the system
Speaker 2: cap for their scarcity adder. They reduced that to five
Speaker 2: thousand dollars per megawat, which is why we saw price
Speaker 2: is around that level this summer. The scarcity adder also
Speaker 2: kicks in at a higher reserve level, so it's more conservative. Basically,
Speaker 2: prices will increase at a higher level than before to
Speaker 2: try and get power plants to come online. They've also
Speaker 2: added more ancillary services, which is another reliability service that
Speaker 2: Urcott has. But they've done a whole study to improve
Speaker 2: long term market design. The major one that passed earlier
Speaker 2: this year is called a performance credit mechanism. It's a
Speaker 2: capacity like payment. So as we talked about before, other
Speaker 2: markets have capacity markets that procure enough supply over a
Speaker 2: certain number of years. Orcott has famously been an energy
Speaker 2: only market, but is trying to introduce this new payment
Speaker 2: that is more predictable and can be another revenue to
Speaker 2: power plants other than these extreme price fikes.
Speaker 4: See the other thing I would say, though, that has changed,
Speaker 4: and maybe you don't say Urcott has changed this. It's
Speaker 4: just something that has changed generally is that there's a
Speaker 4: huge amount of solo beein to the grid. So typically
Speaker 4: these price spikes, apart from February twenty twenty one, which
Speaker 4: was an exceptional set of circumstances, typically you're expecting these
Speaker 4: price extremes, this lottery as we describe it, to happen
Speaker 4: during the summer and when the temperature is high, i e.
Speaker 3: During the day all day.
Speaker 4: Now, there's so much solar being added and still being
Speaker 4: added in Texas, it's enough now that we're at a
Speaker 4: stage where for most of the day you can rely
Speaker 4: on solar generating enough to meet that high demand, and
Speaker 4: so these price spikes aren't going to happen and won't
Speaker 4: be necessary. And it's only now during a more limited
Speaker 4: time window that during the late afternoon when the solar
Speaker 4: generation is ramping down but it's still hot that you
Speaker 4: still have the possibility of these price extremes. And so
Speaker 4: while while solar doesn't completely eliminate this dynamic, it certainly
Speaker 4: reduced the probability of it and made it maybe a
Speaker 4: little bit more healthy and restricted, I suppose.
Speaker 1: So between this cold snap which happened in twenty twenty
Speaker 1: one which really impacted the gas pipelines and wind power,
Speaker 1: we now have this additional solar that's been coming online
Speaker 1: over the past several years that's really creating or evening
Speaker 1: out the access in summertime. But as you point out rightfully,
Speaker 1: these spikes do tend to happen in terms of demand
Speaker 1: in the afternoon till late afternoon, often as the sun
Speaker 1: is setting and people are heading home returning home after work.
Speaker 1: And my question really has to do with with all
Speaker 1: of this renewables roll out in Texas, are we also
Speaker 1: seeing storage or are we seeing grid flexibility being built
Speaker 1: in What are the mechanisms in place in order to
Speaker 1: meet that late afternoon peak energy demand.
Speaker 2: Solar actually generates during that late afternoon peak of six pm,
Speaker 2: but it's we are now seeing that peak net demand,
Speaker 2: which is demand minus renewables, happen when solar comes offline.
Speaker 2: Eight to nine pm, so that more predictable renewables waiting off,
Speaker 2: more solar waning off could cause price spikes that happened
Speaker 2: later in the day. That what we've typically seen, which
Speaker 2: has been driven by demand in people coming home.
Speaker 4: And to your question around storage data, that is creating
Speaker 4: an opportunity for storage. It's a very well defined time
Speaker 4: window where high prices are expected. You know, we've seen
Speaker 4: it in California that solar gets built and then storage follows.
Speaker 4: We're seeing the same happening in Texas. It's maybe at
Speaker 4: an earlier stage, but yeah, we are expecting in the
Speaker 4: next few years now a substantial amount of storage to
Speaker 4: get built in Texas to complement the solar.
Speaker 1: Another show that we previously did, which we probably should
Speaker 1: have also featured you in tom was one that was
Speaker 1: around servers and as a potential source of flexible capacity.
Speaker 1: And this brings me to another point around well, certainly
Speaker 1: something that puts a lot of demand on servers, which
Speaker 1: is bitcoin mining. There's an interesting connection here to Urka,
Speaker 1: and we'll come to that, but before we go there,
Speaker 1: talk a little bit about well, bitcoin mining and why
Speaker 1: is it so energy intensive and require so many servers?
Speaker 4: So that's a good question because in a way, I
Speaker 4: understand very well the impact that bitcoin mining has on
Speaker 4: the energy system, but I'm certainly not a bitcoin expert.
Speaker 4: But the way bitcoin works is that the system is
Speaker 4: built around that you create new bitcoins by solving complex
Speaker 4: computational problems, and you get rewarded with bitcoins for doing that,
Speaker 4: and you also, in doing so facilitate processing of transactions
Speaker 4: in the bitcoin market, and over time, the amount of
Speaker 4: energy required to create every bitcoin increases, the idea being
Speaker 4: that eventually all the bitcoins that are possible to be
Speaker 4: created will be created, but at that point in time,
Speaker 4: it will be really energy intensive to create a bitcoin.
Speaker 4: Now I know that when I say, oh, it's very
Speaker 4: energy intensive, everyone has a sort of a knee jerk
Speaker 4: reaction and says, that's so bad, that it's so energy intensive,
Speaker 4: And I actually just want to maybe temper that a
Speaker 4: little bit. If you have, say, servers that consume a
Speaker 4: megawatt of power, and it costs barely any energy to
Speaker 4: produce some bitcoins, then you're just going to produce more bitcoins.
Speaker 4: The fact that it's more energy intensive just means that
Speaker 4: you're still going to run your server the same amount,
Speaker 4: you'll just get less bitcoins from doing it, And actually
Speaker 4: that means you're more likely to switch off when power
Speaker 4: prices are too high, which is normally when fossil generation
Speaker 4: is happening. So Bitcoin gets a little bit of a
Speaker 4: bad rap for being so energy intensive, and I sometimes
Speaker 4: think that maybe misses the point a little bit.
Speaker 1: But there is this flexibility element just built in inherently
Speaker 1: to the way the market functions.
Speaker 4: Yeah, and you only get that flexibility element because it's
Speaker 4: energy intensive.
Speaker 1: Well, let's back up still one more, which is is
Speaker 1: bitcoin very common in Texas? Like what's the connection between
Speaker 1: er cut and bitcoin.
Speaker 4: I'm going to let Natalie give you the numbers, although
Speaker 4: I know what they are, but I will just anecdotally
Speaker 4: tell you.
Speaker 3: I'll just anecdote.
Speaker 4: Because I feel like she found out these numbers, but
Speaker 4: I'll anecdotally tell you when she was working on the
Speaker 4: Erko market outlook and she told me, oh, Tom, oh,
Speaker 4: bitcoin is a big factor in Texas, and I was thinking, oh,
Speaker 4: that's nice, a nice little side story, and she told
Speaker 4: me the numbers, and I was My first reaction was like, Natalie,
Speaker 4: I think you might have got your units mixed up
Speaker 4: because the numbers were so unbelievable. But Natalie tell us
Speaker 4: what those numbers are, and I will just say she
Speaker 4: hasn't got her units mixed up.
Speaker 2: Yeah, Urkott has about two gigawatts of bitcoin mining capacity
Speaker 2: online that has sprung up in the last year or two.
Speaker 2: Baseload demand in Urcott is forty five to fifty gigawatts,
Speaker 2: so that's not sensitive to temperature. So assuming bitcoin is
Speaker 2: running around the clock except during the stressful grid hours,
Speaker 2: that's about two to three percent of Urcott's basedload demand.
Speaker 1: Now, what does it look like going forward? And is
Speaker 1: Texas a growing market for bitcoin miners.
Speaker 2: Yes, Urcott has its own like large load Interconnection Q,
Speaker 2: similar to on the renewable side of Interconnection Q, except
Speaker 2: for these large loads, and it has about thirty seven
Speaker 2: gigawatts of these they're most likely duplicate projects and not
Speaker 2: all of them will come online, but we did here
Speaker 2: enough create a project database based on company announcements, and
Speaker 2: there could be five to six gigawatts in the next
Speaker 2: few years.
Speaker 1: Now, when you first looked at those numbers, Tom certainly
Speaker 1: told us what his initial reaction was when you brought
Speaker 1: them to him. But when you stumbled upon this you
Speaker 1: know or didn't stumble upon when you researched this particular
Speaker 1: heart of Texas's energy grid. What was your initial thought.
Speaker 2: Yeah, it was an interesting thing to track since there
Speaker 2: was a lot of news articles of bitcoin mining flocking
Speaker 2: to Texas and a lot of politicians welcoming them into
Speaker 2: their towns and cities. So we wanted a way to
Speaker 2: quantify how big of an impact this was, which is
Speaker 2: why we had to track in on a project a
Speaker 2: project basis and found those massive numbers. And the other
Speaker 2: thing that was hard to ignore was the amount of
Speaker 2: demand growth that happened last summer. So the previous demand
Speaker 2: record are caught was seventy five gigawatts set in twenty nineteen,
Speaker 2: and that that held until last summer, and it broke
Speaker 2: the demand record close to a dozen times and reached
Speaker 2: eighty gigawatts, So that's six gigawatts of peak demand growth.
Speaker 2: Is quite rare in other parts of the US to
Speaker 2: have so much load growth, so we wanted to try
Speaker 2: and measure how much of it was the bitcoin that
Speaker 2: was adding to this tremendous load growth.
Speaker 1: So we do know that servers generally do pose an
Speaker 1: opportunity for flexibility within an energy system, and I believe
Speaker 1: that you also came across some really interesting examples of
Speaker 1: where that has happened, specifically with bitcoin. Can you elaborate
Speaker 1: on some of those.
Speaker 2: Last July, there was another heat wave in Texas and
Speaker 2: prices also exploded, and based on quotes and what we
Speaker 2: modeled demand, we saw that around one hundred and fifty
Speaker 2: dollars per megawatt, based on what the bitcoin price was
Speaker 2: at at that time, was about the break even price
Speaker 2: of bitcoin. So if anything above it, it made economic
Speaker 2: sense for these minds to shut off. And that's broadly speaking,
Speaker 2: a lot of these minds have different efficiencies.
Speaker 1: Did many of them take advantage of it?
Speaker 2: Yeah?
Speaker 4: I mean I think they pretty universally took advantage of
Speaker 4: it because either they have demand response agreements in place,
Speaker 4: but if they're exposed to wholesale power prices, it makes
Speaker 4: no sense for them to mine bitcoin at a loss.
Speaker 4: And I suppose this kind of speaks to just why
Speaker 4: this is interesting to me, even if I'm not interested
Speaker 4: in bitcoin. Is one thing that makes bitcoin unique as
Speaker 4: a load, and this is different from other servers, is
Speaker 4: that you can switch it off instantly because effectively, bitcoin
Speaker 4: miners they're trying to randomly guess the answer to a problem,
Speaker 4: and periodically they'll hit on the answer and get rewarded
Speaker 4: with some bitcoin and overtime. This averages out into quite
Speaker 4: a sort of easy equation for them to say, how
Speaker 4: much money do we make for every megawa hour we consume?
Speaker 4: But what that means is when the price of power
Speaker 4: gets too high that it's not worth it for them,
Speaker 4: they can just switch off instantly. It's not like say
Speaker 4: AI servers or any other kind of server where there's
Speaker 4: ongoing operations that are happening that you can't just switch
Speaker 4: computers off. With bitcoin mining, they really can just instantaneously
Speaker 4: just pause their operations and just wait for the right
Speaker 4: time to switch them on again. So it's kind of
Speaker 4: the ultimate source of flexible demand.
Speaker 2: There was one example of a bitcoin company, Riot Blockchain,
Speaker 2: last July when there was heat waves. They made nine
Speaker 2: point five million dollars from curtailing their operations and selling
Speaker 2: electricity back to Urkot, which is more than the five
Speaker 2: point six million that they sold that month.
Speaker 1: So it's almost, well, not quite, but nearly double what
Speaker 1: they would have made if they actually did their core business.
Speaker 1: So speaking of a core business, that one might even
Speaker 1: think is quite synonymous with Texas when we think about
Speaker 1: the oil and gas industry. It's been there for some time,
Speaker 1: and they also have some impact on energy consumption. Would
Speaker 1: you be able to explain whether or not this hazard
Speaker 1: maybe has not been impacting any of the price bikes.
Speaker 2: Yeah, so oil and gas production out in the Permian,
Speaker 2: which is in the far west region of Texas, has
Speaker 2: tripled them in that region. However, as arcot as a whole,
Speaker 2: it's quite low percentage of total energy demand.
Speaker 1: So even though it's tripled in the Permian basin, it's actually,
Speaker 1: just to break it down, not that big of a
Speaker 1: deal because the overall demand for the total grid is
Speaker 1: not a big deal.
Speaker 2: Yeah, it's less than ten percent. I believe most of
Speaker 2: the demand comes from the cities in central Texas.
Speaker 1: Now, when do the hottest parts of the year really
Speaker 1: hit Texas? Because you mentioned that this heat wave that
Speaker 1: came through was in June, which really is what spurred
Speaker 1: our conversation. But we're not through summer yet, So what
Speaker 1: does August look like? Does it have a late summer
Speaker 1: in Texas in it? Should this be something that we
Speaker 1: should continue to be watching quite closely.
Speaker 2: Yeah, I think this heat wave has been unrelenting. So
Speaker 2: in mid June we saw extreme temperatures and Arcott issuing
Speaker 2: a weather watch to customers, and in mid July they
Speaker 2: also issued another weather watch for the extreme heat. August
Speaker 2: has typically been when we've seen these really high power
Speaker 2: price spikes. Last summer, August cool down compared to April
Speaker 2: to July. So perhaps we could see that that trend
Speaker 2: again of cooling, or we could see even higher temperatures
Speaker 2: and prices hitting in August.
Speaker 1: We'll definitely be watching the weather. And as we look
Speaker 1: into the future, you know you'd noted that solar really
Speaker 1: does occupy this very useful space in the way that
Speaker 1: electricity is consumed in Texas. Do we forecast that there
Speaker 1: will be additional solar broad online and that'll continue to
Speaker 1: be a really popular solution for their grid.
Speaker 2: Definitely, we see about four to five gigawatts of solar
Speaker 2: coming online year over year.
Speaker 1: So we've come to this section where I don't do
Speaker 1: it on every show, but sometimes I ask some questions
Speaker 1: that are watcher ignore because you guys are the experts,
Speaker 1: and I want to know what things are you keeping
Speaker 1: closer to the ground on and what sort of things
Speaker 1: are you potentially ignoring for the time being and will
Speaker 1: resurface in the future as they come up. So I've
Speaker 1: got a couple of them for you. In the watcher
Speaker 1: ignorer category. You had noted that it looks like solar
Speaker 1: is going to be increasingly popular or continue to be
Speaker 1: popular going forward. How about wind?
Speaker 3: Ignore? Oh am, I just am I supposed to give
Speaker 3: more than just saying that. I thought it was just
Speaker 3: really I want to.
Speaker 1: I like that though, that was so clear that you
Speaker 1: didn't even hesitate for a second time.
Speaker 4: I think that wind. There's already so much wind in Texas,
Speaker 4: and so it will continue to be an important part
Speaker 4: of the energy mix there. And sure there will continue
Speaker 4: to be wind being developed, but it's just getting eclipsed
Speaker 4: by the rate of which solar is being added. So
Speaker 4: I know that we all associate, well we don't all,
Speaker 4: but those of us who look at these things associate
Speaker 4: Texas with wind. But I think it's going to be
Speaker 4: more and more that the market is defined by solar,
Speaker 4: kind of more similar to say California in that regard.
Speaker 1: Okay, next, watch or ignore. It feels like the elephant
Speaker 1: in the room to me, for what is an island
Speaker 1: grid interconnectors.
Speaker 4: Oh, it's hard to say watch or ignore because I
Speaker 4: feel like what I would say watch because it it
Speaker 4: would benefit so much from it. But I would also
Speaker 4: say ignore because I'm not sure if I actually see
Speaker 4: it happening given the politics around it. I don't know, Natalie,
Speaker 4: you may know more on this than I do.
Speaker 2: Yeah. I think when Better O'Rourke was running for governor,
Speaker 2: that was one of his policies he wanted to do,
Speaker 2: was to connect or cut to other grids. I'm on
Speaker 2: a similar stance in which it would totally change ERCOT
Speaker 2: if it connected to the rest of the country. But
Speaker 2: I also don't see that happening anytime soon.
Speaker 4: I think there's two factors at play. One is is
Speaker 4: that at some point, if Texas is really interconnected to
Speaker 4: the wider system more broadly than it would have to
Speaker 4: come under the jurisdiction of FIRK, the Federal Energy Regulation Commission,
Speaker 4: and politically Texas wants to remain independent in as many
Speaker 4: ways as possible. So that's one thing, and the other
Speaker 4: is just to generally, in the US, it's hard to
Speaker 4: build transmission lines, even if you have all the political
Speaker 4: will that you could possibly ask for there's so many
Speaker 4: different barriers in sort of terms of regulation, politics, you face.
Speaker 4: So it's just that's kind of like the cavalry that
Speaker 4: is never going to come.
Speaker 1: So interesting that you say that, Tom, because the show
Speaker 1: that's going to follow up next week is actually going
Speaker 1: to be about transmission lines.
Speaker 3: Oh cool, so we will get to that.
Speaker 1: Watch this space.
Speaker 3: They might have a different perspective.
Speaker 1: Well, we're not talking specifically about Arcott, but we will
Speaker 1: talk about some of the challenges and really the necessity
Speaker 1: of transmission lines for building out any energy infrastructure. Okay,
Speaker 1: So last in the watch or ignore space, we talked
Speaker 1: earlier about demand response in a very real way when
Speaker 1: it comes to bitcoin and servers. Are you watching or
Speaker 1: ignoring demand response and maybe other forms in other companies
Speaker 1: A watch ooh, a simultaneous watch.
Speaker 2: Yeah. An elastic demand is kind of the fundamental part
Speaker 2: of power markets. So the fact that we're getting a
Speaker 2: sizable amount of demand that is price sensitive is a
Speaker 2: very interesting dynamic that has developed an Arcot. It's hard
Speaker 2: to know how much more of these minds are going
Speaker 2: to come online, especially with recent news of bitcoin, but
Speaker 2: beyond bitcoin mining and just generally larger load being responsive
Speaker 2: to the men and creating that flexibility in the grid
Speaker 2: with renewables will be a very big thing to watch.
Speaker 4: I mean, I co sign all of that, and I
Speaker 4: think that it's not just interesting from a Texas or
Speaker 4: Aircot point of view, and it's not even interesting necessarily
Speaker 4: from a Bitcoin point of view. It's that because you
Speaker 4: have this rapid infusion of flexible demand in air coop
Speaker 4: whilst at the same time a lot of renewables are
Speaker 4: being added, there are lessons that we can learn that
Speaker 4: can be applied when we think about the future of
Speaker 4: the energy transition, where it's not necessarily Bitcoin, but there
Speaker 4: might be other forms of flexible demand. And it's just
Speaker 4: the sort of the responsiveness, and as Natalie says, the
Speaker 4: price in elasticity is, we see it in so much
Speaker 4: more of a real time and responsive way in AERCOP
Speaker 4: that it's a little bit like a science lab. So
Speaker 4: you don't have to agree with urcot's market design or
Speaker 4: Texas politics, but at least take an interest in what's
Speaker 4: happening in ERKOP because I think that there are some
Speaker 4: important lessons for other markets about how to go about
Speaker 4: the energy transition that can be learned, and that flexible
Speaker 4: demand that bitcoin is providing is a big part of
Speaker 4: that lesson.
Speaker 1: I think that's an excellent final thought to end on.
Speaker 1: Natalie Tom, thank you very much for joining me on
Speaker 1: the show today.
Speaker 3: Thank you for having us.
Speaker 2: Thank you so much, Jana.
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