Energy Socialism Comes to Texas

 

“Either the price goes higher or the lights go out.”

That’s the prescient phrase popularized by Rick Rule. He was talking about uranium and the supply/demand fundamentals attached to it.

Over the weekend in Texas — and many other parts of the country — the lights went out.

You heard right. The largest energy producing state in the country couldn’t get through a week of below freezing temperatures.

Over four million people haven’t had heat, some for days in single digit temperatures, with nowhere to go because the Texas power grid — which is mostly powered by wind and natural gas — failed.

Here’s how the Houston Chronicle explained the failure:

“The Electric Reliability Council of Texas (ERCOT) grid collapsed in exactly the same manner as the old Soviet Union. It limped along on underinvestment and neglect until it finally broke under predictable circumstances.”

Here in Austin, the great state of Texas isn’t allowing a major utility company to restore power to 42% of its customers due to “grid stability concerns.” It’s 8 degrees in Austin today.

Who could’ve seen this coming? I don’t know, maybe anyone with half a brain.

We had at least a week of forecasts — and history as a guide — asking everyone to prepare for sustained periods of freezing weather.

The state — which controls the grid — is being forced to ration power socialist style while simultaneously “hiking energy prices to meet the demand.”

Socialism in Texas? It literally has felt like it for the past few days.

The second most frustrating part of this whole ordeal is how avoidable this all was.

For a state that prides itself on energy independence, it has done an atrocious job of planning for the long term and has underinvested in winterizing, scaling, and updating the state’s energy grid.

The breakdown in the state’s power grid was due to two primary factors:

1. Electricity demand over the “Extreme Peak Load” scenario ERCOT planned for.
2. Thermal power plant — natural gas, coal and, yes, even a nuclear plant — outages.

Of approximately 70,000 MW of thermal plants in ERCOT… 25,000-30,000 MW have been out since Sunday, as outlined by macro energy systems engineer and Princeton Engineering Professor Jesse Jenkins.

While people freeze, I’ve seen many delight in the failure of Texas to safeguard its power grid and drive home political points. Stay classy.

There are solutions that involve nuclear (which takes time), wind, solar, natural gas, and a host of other options.

Be absolutely clear that there is blame to be had for the fiasco in Texas.

But also be absolutely clear that solutions are going to require massive amounts of infrastructure investment that transcend political theatre and bickering.

Infrastructure investment that the portfolio has been positioned to benefit from.

Because if not, this won’t be the last time the lights go out.

Let's get it!

Gerardo Del Real
Editor, Daily Profit Cycle

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For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Daily Profit Cycle, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

*Follow Gerardo on Twitter.

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