Buffett’s plan to repair Texas power grid includes 10 new Buffett-owned peaker plants

Warren Buffett, the wise man from Omaha, is generally recognized as the world’s smartest investor. Perhaps so, although it can be argued that your warm acceptance of fossil fuels indicates that it may be good for making money but not so good for keeping your customers healthy. For the past few weeks, his henchmen have been running touting a plan to keep the lights on in the lone star state even during extreme weather events like 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 natural gas plants in Texas in exchange for a guaranteed rate of return. According to a report from the Texas Tribune, the new generation facilities would be installed and ready to supply electricity to the grid no later than November 2023. A peak plant remains idle most of the time until it is put into service to meet the high demand for electricity. In theory, it can be put online to provide electricity in as little as 10 minutes. “When you flip that switch and say, look, demand has exceeded supply, it has to kick in in 10 minutes,” Chris Brown, CEO of Berkshire Hathaway Energy, told the Texas Tribune In an interview. “That is the promise of the Texas Emergency Power Reserve, that is the promise that we are making to the citizens of Texas.”

The new power plants would be paid for with a surcharge on Texas consumers’ utility bills: $ 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.

Low-priced electricity

For decades, the Texas utility grid has been designed to provide electricity at the lowest possible cost. As a result, spending money to protect infrastructure from extreme weather was taboo. When subzero weather gripped the state in February, many Texans turned on electric heaters, sending demand for electricity skyrocketing. ERCOT tried to respond, but many pieces of the network infrastructure were destroyed by the cold. The natural gas pipeline valves froze. The diesel engines that power those pipes refused to start.

“We had no shortage of power plants, we had a shortage of power plants that could run in the cold and the gas to run 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’s not entirely clear that more power plants need to be built. “JP Urban, senior vice president and acting chief executive officer of the Texas Electric Companies Association, a trade association of electric companies in the state, warned lawmakers earlier this year. this week that they should not subsidize new power plants in response to last month’s outages. The money would be better spent on winterizing existing facilities, precisely the kind of investments that have not been made in the past 20 years to keep the cost of electricity low.

The Texas Tribune explains the dilemma that Texas has been created in this way. When the demand for energy is high, the price of energy increases and companies that can supply electricity to the grid get more money. The cheaper a power plant can generate electricity, the higher the profit margin will be when it is sold to the wholesale market. On the other hand, air conditioning a generator facility so that it can operate in extreme hot or cold conditions 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 profitable than winterizing existing facilities. Chris Brown says his company’s new natural gas plants will be winterized and 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 this if it didn’t think the rate of return on its investment would be higher than it could get elsewhere.

A gang of lobbyists

The Texas Tribune reports that Berkshire Hathaway Energy has hired eight lobbyists in Austin to rally support for the company’s plan at a cost of more than $ 300,000, according to records filed with the Texas Ethics Commission. One such lobbyist is Allen Blakemore, a Houston political consultant who serves as Lt. Governor Dan Patrick’s top strategist. Company executives have also met privately with legislative leaders, including Lieutenant Governor and Speaker of the House of Representatives Dade Phelan. Governor Greg Abbott is on record supporting HVAC programs on building new generation capacity. His office did not respond to a request for comment from the Grandstand.

Lobbying is a polite and socially acceptable form of bribery. The apparent purpose is to educate legislators on issues of concern to voters, but there is often an unspoken quid pro quo that goes like this: vote for this proposal and we won’t forget it when your next election campaign needs money. Texas politics is one of the most complicated of any state and it is difficult to keep track of players and secret deals. A few years ago, Elon Musk and Tesla handed out a lot of cash in an attempt to repeal the dealer franchise law in Texas, but they came up short when the votes were counted.

Not everyone in Texas is a Warren Buffett fan either, so it’s unknown how this particular charade will play out. The deadline for submitting proposed new legislation in Texas this year is long past, so any new initiative like the one Berkshire Hathaway is proposing will have to be added to one or more existing proposals. In fact, that could become a complicated process.

What about Tesla and energy storage?

Remember a few years ago when the power grid went down in South Australia and Elon Musk swooped in to offer one of the first grid-scale storage batteries in the country to stabilize the grid? That facility, popularly known as the Hornsdale Big Battery (it has since grown even larger) was installed on time and on budget. Since it began operating, it has performed excellently and even generated significant profits for its operator, Neoen.

Tesla is now fully invested in Texas, with its new Gigafactory in Austin and its space flight hub in the Gulf of Mexico near the Mexican border. Far for us to tell Elon what to do, but if there was ever a golden opportunity to show Texas how a modern, resilient network beats an old gas network, this is it. Yes, a Tesla subsidiary is building a 100MW 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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