Texas heat challenges a strained energy grid

Everybody, Peter Zeihan here coming to you from Colorado. We’re going to talk today about Texas because back on the 28th On Sunday, the electricity regulator of Texas called Air cot, warned that there could be rolling Brown and blackouts on the 29th of April. Their concern was that temperatures were already expected to nudge up above 90 degrees in some parts of central and southern Texas. Now, at the end of the day, it wasn’t too bad. We just had a few sparks and bread outs here in there. The issue here is twofold. First one I can’t do anything about and that’s climate change. As Texas is getting warmer, as the population is expanding, and people are moving into warmer and warmer areas, you’re seeing more pressure on the system writ large electricity systems can transmit as much power when it’s hot. In addition, things like water coolant systems for say nuclear power plants don’t work as efficiently. So hot actually doesn’t just mean demand goes up, it means sometimes supply can go down. The other problem is more industrial and is going to become a bigger and bigger and bigger problem moving forward at a much faster rate than anything that climate change does. As the Chinese and the European systems crack, the United States is going to have to enter in a period of extreme industrial regeneration. Now we’ve already started that we’ve seen industrial construction spending in the United States expand by a factor of 10. In just the last five years, and Texas has been an outsized beneficiary of that. But the bottom line is, is if you’re going to add a lot of industry and manufacturing, you’re going to be moving metal in forging materials and doing a lot of stamping. And all of those are really electricity intensive. It’s not that we don’t use more electricity as we get into things like server farms, but it’s nothing compared what happens when you forge and move stuff. So I estimate that the United States needs to roughly double the size of its industrial plant. And just from that we need 50% more electricity. When the case of Texas you got to triple bind here, you’ve got the energy transition, which is more electricity dependent, you’ve got a population explosion, as people move to Texas because it’s a cheaper place to live. There’s no taxes, land is cheap. Food is cheap, electricity until recently was cheap. And so you’ve got just a broad spectrum demand build, and then the manufacturing Renaissance on top of that. So I would estimate that the Texans need to actually double the size of their grid, preferably within the next 10 to 15 years. And we have never had that kind of build up before. Now, there is a problem here, in addition to just the sheer numbers involved, and that is the regulatory structure of Texas, it is separated from the rest of the National Grid it regulates itself and connections between Texas and the rest of the country are very slim. So when Texas enters into a period of abject shortage, the only solution for it is to overhaul its regulatory structure to bring in new power systems, or to link up to the rest of the grid, which means some federal regulation will come into play. The Texans really don’t want to do option B, the problem with Option A is it but Texans are gonna have to change their ideology of power management. Right now, the way Erekat regulates the space is you can only charge the rate payers money for times when a power plant is actually operational. Well, that sounds kind of obvious. The problem here is when you deal with situations like say peak demand in the evening, you have to bring in a lot of peaker plants, when you’re looking at solar systems, if you’re going to bring them online, they only generate during the day. So what Texas has done partially for ideological reasons is to penalize companies that build systems that are not used all the time. thing is when you get into surge demand situations, that just means the grid goes down. And that is an entire model that they are going to have to reimagine. Now people will of course, point California as the counterpoint and I’m not saying that Californians have figured it out either. California has decided to go whole hog into the green transition, and pull out all the coal out of their system and now as much natural gas as they possibly can. And they’re starting to make some crazy claims about having a largely carbon free grid and it is a lie. The Californians are really bad at math. Basically, every time the sun goes down every day, they turn on this 11 gigawatt capacity cluster of lines that connects Los Angeles to the Arizona border. And every bit of electrons that are coming in from Arizona is fossil fuel driven primarily natural gas and coal. Overall, California imports over 1/3 of its electricity, they just don’t include that data in the math. So it’s not that California has really gotten green. It’s a California has simply outsource its carbon emissions. both California and Texas, I would argue are now operating on a model that is failing and both of them need to get overhauled. Texas, however, is the one where this is going to be a desperate issue because no one is really thinking oh, I’m going to build a manufacturing plant just outside San Jose in an in an in and out. All that sort of stuff happens in Texas. So the demand build is going to be explosive, and it’s going to force the Texans to make some uncomfortable decisions and some very large investments very soon.