Winterizing power plants pays off for risk-neutral investors in Texas

Considering the probability of occurrence of an extreme cold event similar to that in February 2021, winterization of the Texan power system pays off for risk-neutral utilities in the medium term. Risk aversion can cause under-investment, and policymakers should therefore take into account extreme e...

Full description

Saved in:
Bibliographic Details
Published in:Nature energy 2022-05, Vol.7 (5), p.398-399
Main Authors: Gruber, Katharina, Gauster, Tobias, Laaha, Gregor, Regner, Peter, Schmidt, Johannes
Format: Article
Language:English
Subjects:
704/844/4066/4075
704/844/843
Aversion
Climate change
Climatic data
Cold
Decision making
Economics and Management
Energy
Energy Policy
Energy Storage
Energy Systems
Extreme cold
Global warming
Incentives
Infrastructure
Policy Brief
Power plants
Renewable and Green Energy
Risk
Risk aversion
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Considering the probability of occurrence of an extreme cold event similar to that in February 2021, winterization of the Texan power system pays off for risk-neutral utilities in the medium term. Risk aversion can cause under-investment, and policymakers should therefore take into account extreme event risks in decision-making and implement measures that increase winterization efforts. Messages for policy Severe cold events such as the one in 2021 can occur again, even under a warming climate, and the Texan power system infrastructure is currently unable to guarantee power supply under such conditions. In principle, scarcity pricing in Texas provides sufficient incentives for extensive investment into winterization for risk-neutral investors, taking into account the frequency of those events derived from climate data. However, investment risk is high, explaining a lack in investment. Older power plants have a lower incentive to winterize, and higher profits at lower risk may be expected from alternative investments. The current incentive structure leads to market failures with severe consequences for Texan consumers under extreme events such as in February 2021. The ongoing transition of the Texan power system to one with high shares of renewables can be used to replace old infrastructure that is sensitive to cold events with new infrastructure that is able to cope with such events.
ISSN:2058-7546
2058-7546
DOI:10.1038/s41560-022-01031-8