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« Back to Results

Evolving Electricity Markets

Paper Session

Sunday, Jan. 5, 2020 1:00 PM - 3:00 PM (PDT)

Manchester Grand Hyatt, Gaslamp D
Hosted By: Association of Environmental and Resource Economists
  • Chair: Jim Bushnell, University of California-Davis

Your Money or Your Wildlife: Environmental and Economic Tradeoffs from Solar Siting Restrictions in Texas

Daniel Lloyd Shawhan
,
Resources for the Future
Alan Krupnick
,
Resources for the Future
Rebecca Epanchin-Neill
,
Resources for the Future
Paul Picciano
,
Resources for the Future
Alexandra Thompson
,
Resources for the Future

Abstract

Texas’ utility-scale solar capacity more than doubled in 2016, and more than doubled again in
2017-18, and Texas ranks third in the nation for anticipated solar capacity additions. The
anticipated land use conversion of large areas required for solar development could result in
habitat loss and fragmentation, making it imperative to assess the environmental impacts of
such wide-scale expansion of solar energy, as well as to consider the costs of solar siting land
use restrictions on the electricity sector, consumers and air quality.
In this study we combine a highly detailed electricity system-and-market model with an air
pollution model and an extensive array of geospatial data on physical, legal, and habitat quality
to project how much important habitat land will be covered with solar arrays in Texas, as well
as to evaluate the benefits and costs of potential solar siting restrictions aimed at reducing the
habitat impacts from solar. Our study determines the optimal renewable energy portfolio and
siting locations based on resource potential, costs, solar siting exclusions, and accounting for
solar project economies of scale. We estimate the welfare effects of protecting important
habitat land that would otherwise be covered with a solar array. These costs include health
effects from utility emissions changes, consumer and producer surplus changes in the electricity
sector (which itself includes the costs of building and operating the solar facilities and
transmitting their power), and lost government revenue, but exclude the benefit of protecting
the habitat itself. The solar siting restrictions cause these welfare losses by reducing solar
development, making solar and wind development more costly, increasing curtailment of solar
and wind generation, increasing emissions, and increasing the use of inefficient natural gasfired
“peaker” generators to compensate for more variable generation from wind and solar
combined.

Packing Power: Electricity Storage, Renewable Energy, and Market Design

Jackson Dorsey
,
Indiana University
Gautam Gowrisankaran
,
University of Arizona
Andrew Butters
,
Indiana University

Abstract

Cheap and abundant energy storage has been touted as the “holy grail” of the electricity
sector. Storage could reduce the cost of electricity and facilitate the expansion of intermi
‹ent renewable energy sources like wind and solar PV. Renewable energy generation
changes the value of storage by shi‰ing the marginal cost of electricity production di‚erentially
across hours of the day. Furthermore, renewables can increase uncertainty about
the production level required from fossil-fueled plants in future periods. To investigate
the role of storage on a grid with expanding renewables, we cast the storage operator’s
problem as an in€nite horizon dynamic optimization under uncertainty. We solve for the
optimal storage policy in the California electricity market during the four years from 2014
to 2018. Solving the dynamic problem allows us to address several key questions: 1) How
has increased renewable energy penetration impacted the value of electricity storage? 2)
How does renewable intermi‹ency change the optimal dispatch of storage resources? Preliminary
results suggest that increased generation from solar and wind power has nearly
doubled the value of storage in California. A key reason is that renewables increase price
volatility and storage can be used to mitigate risks of production cost spikes.

Linking Carbon Markets with Different Initial Conditions

Matt Woerman
,
University of Massachusetts
Dallas Burtraw
,
Resources for the Future
Karen Palmer
,
Resources for the Future

Abstract

Linkage of emissions trading systems theoretically minimizes total abatement costs by allowing fungibility of emissions reductions across jurisdictions. We develop a theoretical framework to investigate the implications of linking systems with unique designs. We find that a uniform price is rarely socially optimal when linking bilaterally; instead, an allowance exchange rate, which results in different allowance prices in each trading system, yields a socially preferred outcome by bringing total abatement closer to the socially optimal level. This finding follows from the fact that an exchange rate can increase or decrease total abatement across the linked systems because one allowance does not correspond to one unit of emissions under an exchange rate. Over a core range of exchange rate, which policymakers may be most likely to consider, abatement and total welfare are greater in the linked system than in autarky. Other exchange rates, however, can erode the environmental benefits of the programs, driving down total abatement and driving allowance prices toward price floors. Thus, the choice of the exchange rate is important for environmental outcomes and the distributional outcomes across the linked systems. We also qualitatively assess the California and the Regional Greenhouse Gas Initiative systems, which we find to be nearly ready to link despite some differences in their initial conditions, including design and stringency. We use a simulation model of regional electricity markets to investigate market outcomes under such a linked system. We consider possible exchange rates for allowances to adjust for differences in program stringency, and we examine how they interact with price floors and ceilings while explicitly representing other program features (e.g., leakage policies, companion policies, and allowance allocation). We find that aggregate emissions and emissions in each jurisdiction change in ways predicted by theory but that efficiency gains can be distributed in nuanced and nonintuitive ways.

Markets and Efficient Pricing in the Electricity Sector

Linda Cohen
,
University of California-Irvine
Kyle Kettler
,
University of California-Irvine

Abstract

This paper studies the introduction of dynamic pricing in the U.S. electricity industry. We find that dynamic pricing is more likely to be an option in the absence of competition at either the wholesale or retail level; indeed, the likelihood of customers having dynamic pricing options declines with greater competition at either level, whether the customers personally buy power from a regulated utility or independent marketer. This result appears to put in conflict efficient pricing with the discipline of competitive markets. We discuss how the conflict may arise due to the current structure of the market in so-called competitive states, and how that structure may more generally retard complex innovations that add value to activities of multiple actors within the industry.
Discussant(s)
Stan Reynolds
,
University of Arizona
Erin Mansur
,
Dartmouth College
Garth Heutel
,
Georgia State University
Jim Bushnell
,
University of California-Davis
JEL Classifications
  • Q4 - Energy
  • D4 - Market Structure, Pricing, and Design