In the worst-case scenario, the electrical grid’s inability to fully support demand for power on a hot summer day in Texas would mean data center operators would have to switch to generator power for a few hours, which many of them already do during demand-response events.

“If we don’t have enough generation to meet the load, then we have to instruct transmission operators to shed firm load,” Paul Wattles, senior market-design analyst at the Electric Reliability Council of Texas (ERCOT), said. When transmission operators shed load, what occurs are rolling blackouts, through which data centers and other critical facilities ride on backup diesel generators.

“Rolling blackouts are an inconvenience – sometimes a major inconvenience – but they only last for a few hours, and then it’s over,” he said.

ERCOT, which operates the state’s electrical grid – the only independent state grid in the nation – released a report earlier this week, saying that next year, the generation-capacity buffer used to absorb spikes in demand will be lower than necessary to avoid the risk of rolling blackouts.

This buffer is called the “reserve margin”, which ERCOT tries to keep at 13.75% of expected total load. But low energy prices – caused by weak economy and the low cost of natural gas – have kept energy producers from building new power plants in the state.

No cause for panic

As a result, ERCOT predicted the reserve margin would be 13.2% next year. While the prediction is a cause for concern, it is not yet a crisis.

“I would never say that we’re not worried,” Wattles said. “We’re not hitting the panic button, because that 13.2 [%] is close enough to our target that we feel like we can meet the requirements next summer.

“When we’re that close to the target, that means we may have to rely on some of our emergency measures that we don’t normally have to rely on.”

The biggest worry is if a peak-load period – normally a period of unusually hot or cold weather, when people are cranking up air conditioners or space heaters – coincides with a power-plant outage. “That can really change things and make life difficult,” Wattles said.

Incidents like these have happened before. It has happened twice in Wattles’ eight years at ERCOT: once during an extremely hot day in April of 2006 and once again during an extremely cold morning in February of last year.

In both cases, ERCOT initiated rolling blackouts – or rotating outages in utility jargon – and customers were left without utility power for several hours.

“We don’t’ like to do that,” Wattles said. “The loads don’t like us to do that. Nobody likes us to do that.”

There is no alternative in a situation like this, however, other than a statewide blackout. “If the whole grid ever goes black – which it never has, and we hope it never will – that could take two to three days to get everything restored.”

Redesigning the energy market

To avoid such crises, ERCOT and the state’s Public Utility Commission (PUC) are thinking about altering design of the state’s wholesale energy market. These ideas revolve generally around fine-tuning electricity pricing mechanisms and introducing incentives for energy producers to build capacity.

About two years ago, ERCOT and the PUC took a major step to ensure electricity prices reflected the supply-demand ratio by implementing a “nodal” electricity market. In a nodal market – as opposed to a zonal one – electricity prices are based on supply and demand at a much more granular level.

ERCOT’s market consists of 4,000 nodes, each one providing energy availability data in real time. In a zonal market, which Texas had prior to December 2010, energy prices and availability of energy was determined based on data from five “congestion management zones”.

In Wattle’s opinion, the transition to a nodal market has been successful. “Nodal is working exactly the way it’s supposed to,” he said.

“We’re collecting data at thousands of different points on the grid, and especially data from all of the generators on the grid. We know exactly what each of them is doing at any given moment and exactly how expensive that power is at any given moment.”

This means ERCOT can dispatch the most efficient and lowest-cost power at all times, as long as it does not cause congestion problems on the grid. If there is a risk of grid overload, then power is dispatched at the next lowest price.

Since Texas implemented its nodal energy market, wholesale electricity prices started to reflect more accurately availability of power on the grid. If the power is scarce, the price goes up, and vice versa.

But other changes to the state’s energy market are being considered. Jess Toten, principal at Stratus Energy Group, said one regulator’s idea was to go from an “energy-only” market – where high energy price is the only incentive for a provider to build a power plant – to a market where providers are paid by the government for providing capacity.