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Fostering Resiliency with Good Market Design: Lessons from Texas

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  • Peter Cramton

    (University of Cologne and the University of Maryland (emeritus))

Abstract

In February 2021, winter storm Uri brought extreme cold to Texas for many days. The cold caused a spike in electricity and natural gas demand and simultaneously a sharp drop in supply. The electricity shortage caused 4.5 million Texans to lose power for multiple days. Many lost water service too. Storm damage was extensive, including many deaths. This paper examines what happened and offers solutions to improve the reliability and resilience of critical infrastructures. Improved communication before and during the storm would limit the damage. Natural gas market reforms would enhance the reliability of the gas supply, enabling more generators to produce power. Improved energy efficiency would limit the cold-induced demand spike. In addition to ongoing initiatives to integrate storage and distributed generation, the system operator should introduce a voluntary forward energy market that lets market participants better manage risk and plan resources to meet demand. Price-responsive demand should also be encouraged to limit demand surges in cold snaps.

Suggested Citation

  • Peter Cramton, 2022. "Fostering Resiliency with Good Market Design: Lessons from Texas," ECONtribute Discussion Papers Series 145, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:145
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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_145_2022.pdf
    File Function: First version, 2022
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    References listed on IDEAS

    as
    1. Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
    2. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1366-1400.
    3. William W. Hogan, 2013. "Electricity Scarcity Pricing Through Operating Reserves," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    4. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
    5. Peter Cramton, 2017. "Electricity market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 589-612.
    6. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
    7. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
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    Cited by:

    1. Peter Cramton & Axel Ockenfels, 2024. "Germany's Electricity Market Reform Should Harness the Power of Efficient Spot and Forward Trade to Foster Innovation, Investment, and Resiliency," ECONtribute Policy Brief Series 062, University of Bonn and University of Cologne, Germany.
    2. Axel Ockenfels, 2022. "Optionen und Herausforderungen für ein neues Strommarktdesign in der Krise [Options and Challenges for a New Electricity Market Design in the Crisis]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(10), pages 766-769, October.

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