Assessing the Impact of Exceptional Drought on Emissions and Electricity Generation: The Case of Texas.

• Author: Mamkhezri, Jamal

1. INTRODUCTION

Electricity sales in Texas spiked during a prolonged heat wave and subsequent severe drought in the summer of 2011, and electricity prices increased across the state. The highest systemwide hourly peak demand to that point occurred in August of 2011, reaching 68,305 MW.1 During this time, at least one plant curtailed night-time operations, several plants switched from their normal sources of water to alternate sources or added new pumps to reach existing sources, and operators prepared emergency plans to enact demand management and bring mothballed plants online.2 Though the increase in electricity prices was caused in part by increased demand for air conditioning, some of the increase in prices could also be explained by drought-induced shifts in plant availability or increased costs of obtaining sufficient cooling water supplies. The simultaneous supply and demand shocks led to extremely high prices, increased electricity demands, and increased water demands (Scanlon, Duncan, and Reedy 2013).

Drought frequency and severity is forecasted to increase in the coming decades. While projections of precipitation show little change most of the world, projections of atmospheric demand for moisture show an increase in land surface in drought from 5-45% (Burke and Brown 2008). Prolonged periods of drought are particularly threatening to the thermoelectric power sector, which is reliant on large water withdrawals for cooling. Texas provides an ideal setting to investigate how the electricity market responds to exceptional drought conditions. The state of Texas has a single, rather isolated, and integrated electricity market which reports generator-level offer prices and quantities at a sub-hourly frequency. The Texas electricity sector is water-intensive, accounting for nearly half of all water withdrawals in Texas. Importantly, the state has a variety of climatic regions. From 2010 through 2017, all but two counties experienced exceptional drought conditions and all counties experienced some level of non-exceptional drought conditions. This variation in exceptional drought conditions is essential to identifying the effect of water scarcity on the electricity supply and, subsequently, on emissions, making Texas an ideal case study.

The effects of water scarcity on power plant cooling and emissions are widely addressed in the engineering and climate science literature (Bolorinos et al. 2018; Grubert, Beach, and Webber 2012; Herrera-Estrada et al. 2018; Pacsi et al. 2013; Sanders et al. 2014; Scanlon, Duncan, and Reedy 2013), as well as in the energy economics literature (Eyer and Wichman 2018; Linnerud, Mideksa, and Eskeland 2011; McDermott and Nilsen 2014; Olmstead 2014). The consensus of these literatures is that during drought episodes, electricity demand (especially in the residential sector), transmission losses, and congestion increase, leading to a need for a greater generation. The fuel portfolio that provides electricity to meet the excess demand, which varies region to region, impacts the electricity price and quantity, and subsequently, the emitted emissions. Previous studies find that drought increases net emissions during drought periods (e.g., Eyer and Wichman, 2018; Hardin et al., 2017; Kosten et al., 2018), while few researchers find the opposing effect can hold (Pacsi et al., 2013) for certain regions. We build on this literature and add to this body of ongoing research by empirically assessing the effect of exceptional drought, defined below,3 on electricity grid outcomes in the Electricity Reliability Council of Texas (ERCOT) region. We use more granular data than the previous studies and find results that contradict existing findings.

The objective of this paper is to test whether exceptional drought conditions have a significant effect on electricity price and quantity offerings of electricity plants for the years 2010-2017 using intra-hourly ERCOT data. We further estimate the effect of exceptional drought on emissions intensity of electricity production during that period. We find that the effect of exceptional drought on electricity supply varies with the generator's cooling technology type. Generators with water-intensive cooling technologies respond to exceptional drought conditions by raising their average offer prices. However, generators that use dry cooling technologies do not raise offer prices but increase the total quantity offer during exceptional drought periods. These offer price changes lead to lower emissions plants being dispatched during exceptional droughts in ERCOT, resulting in an overall reduction of emissions during our study period. The paper concludes by examining the policy implications.

(2.) BACKGROUND

Thermoelectric sources of electricity (those that use a steam cycle) include coal, natural gas, nuclear, geothermal, solar thermal, and biomass generators. Thermoelectric power production depends on water for cooling, where cooling water is used to absorb waste heat that cannot be efficiently used or recaptured for production. Power plant cooling is a requirement for high-pressure steam turbines, where steam exiting the turbine is condensed in a heat exchanger to be pressurized and returned to the boiler. The cooling acts to reduce back pressure and increase power plant efficiency. Insufficient access to cooling water or lack of access to water of sufficiently low temperatures would necessitate either reducing power output or curtailing production all together (McDermott and Nilsen 2014). Cooling water requirements represent a major withdrawer of water in the United States and specifically in Texas; thermoelectric power represented 45% of all water withdrawals and 46.4% of freshwater withdrawals in Texas in 2010 (Maupin et al. 2014).

Water requirements differ greatly between types of plants and between individual plants of each type. Plants with open-loop or once-through cooling require large diversions of water, as heat is exchanged through continually flowing cooling water. The cooling water is then discharged to the receiving water source at higher temperature. This method consumes little water, as very little water is lost to evaporation. Closed loop or recirculating cooling passes the cooling water through a cooling component, usually a wet cooling tower or cooling reservoir, multiple times. As water evaporates from the system, more water is brought into the cooling system to maintain cooling from evaporation and to control the level of dissolved solids in the cooling water. Closed-loop systems consume a larger amount of water through evaporation, but require significantly lower water diversions (withdrawing less than 5% of the water withdrawn by open-loop systems), because water passes through the cooling system multiple times (Macknick et al. 2012). Plants with the lowest water requirements are those with dry cooling, where fans force air through small tubes in the condenser. While dry-cooled plants consume little or no water, the method is associated with a 2-3% parasitic loss of efficiency on average (Department of Energy 2008), and can cost three to five times as much as recirculating systems in capital outlays (Yang and Dziegielewski 2007).

Drought, and the risk of drought has already had impacts on electricity generation inside Texas, as described above, and outside of Texas as well. Drought and high temperatures have been the driving factors behind several incidences of reduced hydroelectric generation and altered orders and quantities in the economic dispatch of thermoelectric generators. During a 2007-2008 drought, the Laramie River Station plant in Wyoming was forced to lease groundwater rights from land owners, and use pipelines to deliver the water (Averyt 2011). In 2001, grid operations in the Pacific Northwest were impacted by low water flow through hydro-electric generators, causing Bonneville Power Administration to face load obligations that exceeded the available energy supply.4 This, in combination with a general energy crisis on the West Coast, led to a total impact on the region's economy estimated to be between $2.5 to $6 billion in increased power-purchase costs and foregone economic activity.5 Increased water temperatures forced the shutdown of one quarter of France's nuclear plants and many of Germany's hydroelectric and nuclear power plants in the heat wave of 2003, and the shutdown of a unit at the Tennessee Valley Authority's Browns Ferry plant in 2007 (Huertas 2007). Milazi (2009) states that five GW of generation capacity in North Carolina is situated in drought prone regions.

As the urgency of climate change rises, drought frequency, severity, and duration are expected to increase (Cook, Ault, and Smerdon 2015; Olmstead 2014). This can affect electricity generation through two mechanisms: 1- it can force thermoelectric generators to reduce their generation and/or 2- it can increase input costs and make generation costlier (more on these mechanisms below). We focus on exceptional drought situations as it can amplify the mechanisms mentioned above. Our exceptional drought measure is a measure of the percent of each county experiencing exceptional drought, where zero indicates no exceptional drought in a county, and 100% indicates the entire county experiencing exceptional drought. Previous studies demonstrate that drought periods lead to a reduction in hydroelectric power plants generation of electricity (McDermott and Nilsen 2014), and hence a possible net increase in emissions (Eyer and Wichman 2018). Pacsi et al. (2013) studied the impact of drought on electricity cost and air quality during a 3 3-day drought episode in Texas in 2006. The authors found an increase in the average cost of electricity generation and a net decrease in electricity induced emissions (sulfur dioxide and nitrogen oxide) during the exceptional drought period in Southern Texas. Scanlon et al. (2013) assessed the impact of the 2011...