Warren Buffett, the Sage of Omaha, is generally recognized as the most intelligent investor in the world. Perhaps so, although it can be argued that his warm embrace of fossil fuels indicates that he may be good at making money, but not so good at keeping his customers healthy. In the past few weeks, his minions have been running around announcing a plan to keep the lights on in the Lone Star State, even during extreme weather events, such as the one that severely disrupted the state’s power grid in February.
Here’s the gist of the plan: Buffett’s Berkshire Hathaway would spend more than $ 8 billion to build 10 peak 1-gigawatt gas-fired power plants in Texas in exchange for a guaranteed rate of return. According to a report by the Texas Tribune, the new generation facilities would be installed and ready to supply electricity to the grid by November 2023. A peak plant is idle most of the time until it is put into service to meet the high demand for electricity. In theory, it can be brought online to provide electricity in just 10 minutes. “When you turn on the switch and say, look, demand has exceeded supply, it has to go in 10 minutes,” said Chris Brown, CEO of Berkshire Hathaway Energy, to the Texas Tribune in an interview. “That’s the promise of the Texas Emergency Power Reserve – that’s the promise we’re making to the citizens of Texas.”
The new plants would be paid for a surcharge on utility bills for Texas consumers – $ 1.42 per month for residential customers, $ 9.61 for commercial customers and $ 58.94 for industrial customers. ERCOT, the Texas network administrator, would determine when to activate the new facilities, not Berkshire Hathaway.
Cheap electricity
For decades, the Texas power grid was designed to provide electricity at the lowest possible cost. As a result, spending money to protect the infrastructure from extreme weather conditions was taboo. When sub-zero weather hit the state in February, many Texans turned on electric heaters, which raised the demand for electricity. ERCOT tried to respond, but many parts of the network infrastructure were damaged by the cold. The valves in the natural gas pipelines froze. The diesel engines that run these pipelines have refused to start.
“We had no shortage of power plants, we lacked plants that worked in the cold and the gas to operate them,” says Dan Cohan, associate professor of civil and environmental engineering at Rice University. “Texas already has a huge number of natural gas plants. It is not at all clear whether more power plants need to be built. JP Urban, senior vice president and interim CEO of the Association of Electric Companies of Texas, a trade association of electric companies in the state, warned lawmakers earlier this week against subsidizing new plants in their response to last month’s outages. The money would be better spent on preparing existing facilities for the winter – just the kind of investment that hasn’t been made in the past 20 years to keep the cost of electricity low.
O Texas Tribune explains the dilemma that Texas has created for itself in this way. When the demand for energy is high, the price of energy increases and companies that can supply electricity to the grid earn more money. The cheaper a plant can generate electricity, the greater the profit margin when it is sold in the wholesale market. On the other hand, air conditioning a generation facility so that it is able to operate in extreme temperatures of cold or heat requires a large initial investment that can generate only a small return in Texas.
Berkshire Hathaway says its proposal to add generation capacity would be more economical than preparing existing facilities for the winter. Chris Brown says his company’s new natural gas plants will be prepared for the winter and will maintain seven days of natural gas storage on site to ensure they can operate during an emergency. Of course, Berkshire Hathaway wouldn’t be doing that if it didn’t think the rate of return on its investment would be higher than it could get elsewhere.
A bunch of lobbyists
O Texas Tribune reports that Berkshire Hathaway Energy hired eight lobbyists in Austin to garner support for the company’s plan at a cost of more than $ 300,000, according to records filed with the Texas Ethics Commission. One of those lobbyists is Allen Blakemore, a political advisor from Houston who serves as one of Deputy Governor Dan Patrick’s top strategists. Company executives also met privately with legislative leaders, including the deputy governor and Mayor Dade Phelan. Governor Greg Abbott is officially supporting HVAC programs while building new generation capacity. Your office did not return a request for comment from Tribune.
Lobbying is a polite and socially acceptable form of bribery. The ostensible purpose is to educate lawmakers on issues that concern voters, but there is often an implicit quid pro quo that goes like this: vote for this proposal and we will not forget it when your next election campaign needs money. Texas policy is one of the most complicated in any state and it is difficult to keep up with players and behind-the-scenes negotiations. A few years ago, Elon Musk and Tesla spread a lot of money in an attempt to overturn the Texas dealer franchise law, but failed when the votes were counted.
Not everyone in Texas is a fan of Warren Buffett, so there is no way of knowing how this particular charade will unfold. The deadline for submitting new legislation proposals in Texas this year has long since passed, so any new initiative like the one Berkshire Hathaway is proposing will need to be attached to one or more existing proposals. This could become a confusing process, in fact.
What about Tesla and energy storage
Do you remember a few years ago, when the power grid went down in South Australia and Elon Musk appeared to offer one of the first network-scale storage batteries in the country to stabilize the network? This facility, popularly known as the Hornsdale Big Battery (has since grown even bigger) was installed on time and on budget. Since it started operations, it has performed excellently and even generated significant profits for its operator, Neoen.
Tesla is now fully invested in Texas, with its new Gigafactory being built in Austin and its space flight center in the Gulf of Mexico, near the Mexican border. Far be it from us to tell Elon what to do, but if there was ever a golden opportunity to demonstrate to Texas how a modern resilient grid outperforms an old gas-powered grid, this is it. Yes, a Tesla subsidiary is building a 100 MW battery near Galveston, but Texas is a really big state. You will need a lot more storage capacity than that. What do you say, Elon?
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