The Dallas Fed confirms climate-proofing the electrical grid is well worth the cost

The costs of preventing another winter blackout in Texas are likely much lower than the benefits, a Dallas Fed analysis found.
The costs of preventing another winter blackout in Texas are likely much lower than the benefits, a Dallas Fed analysis found.
Image: REUTERS/Mikala Compton/File Photo
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Texans are still paying for the blackouts caused by a winter storm in February that knocked out power for millions. Last week, electricity prices in the state spiked again as a cold front passed through while half of the state’s power plants remain offline for maintenance.

Throughout the crisis, energy economists have been clear: Upgrading the grid for extreme weather is technically easy. Winter storms don’t cause regular blackouts in colder states. But it requires regulators to make a tricky value judgement about how much capital spending to require of electric utilities (costs that will ultimately be passed to customers) in order to avert a disaster that may arrive only once a decade.

Is preparing the electric grid for climate change worth the cost?

In an April 15 analysis, economists at the Dallas Federal Reserve answer with a resounding yes. Estimates from independent auditors have pegged statewide economic losses and damages from the storm and related outages at $80 to $155 billion. But the Fed economists focus on a narrower, slightly more esoteric metric: the “value of lost load,” which puts a dollar value, per megawatt-hour, on customers’ willingness to pay for electricity service. How much would Texas homes and businesses have been willing to pay in electric bills for the power that got cut off? The Fed analysis puts that number at $4.3 billion. In other words, that’s what the Fed sees as a reasonable cap for winterization spending before it ends up costing more than what the power is worth. Assuming that such a winter storm is a once-in-a-decade event, that’s an annual budget of $430 million.

As for cold-weather upgrades: The Fed estimates that winterizing the state’s oil and gas wells would cost $85-$200 million annually, depending on how many new wells are drilled (recall that gas supply chains were frozen, as well as power plants). Plus there’s a one-time cost of $95 million to outfit all 162 gas-fired power plants with the winter upgrades recommended in a federal review of the last big Texas blackout, in 2011. Retrofitting wind turbines is a bit trickier. The best option is self-warming blades, but these can cost up to $400,000 for each of the state’s 13,000 turbines; instead, the analysis recommends a lower-cost combination of “upgraded blade coatings, cold-weather lubricants and de-icing drones.” (Solar, which provides just 2% of the state’s power, isn’t mentioned.)

The upshot is that these expenses “are within the bounds of being economically justified,” the analysis concluded. This isn’t too surprising: Analysis after analysis finds that in general, the cost of acting to avert climate impacts dramatically outweighs the costs of inaction. And for Texas, if severe winter storms become more common as a result of global warming—as, counterintuitively, they might—the math is even more clear.