California’s decision to allow Pacific Gas and Electric (PG&E) to shut off electricity to hundreds of thousands of Californians because high winds and dry conditions may cause a downed powerline to start a wildfire is a third-world solution to a first-world problem.
On November 2 at the University of Hawaii, Program on Energy and Sustainable Development (PESD) Director Frank Wolak gave a special seminar "How Should the Public Utilities Commission Regulate Hawaiian Electric Company for Better Integration of Renewable Energy?" He summarized inefficiencies in Hawaii's electricity system and advocates a "cost based" market in which long-term competitive contracts for power would be used in conjunction with a regulated optimization model that would set real-time prices for buying and selling of electricity and grid services.
Read more (includes links to video of Professor Wolak's talk and slides)
Program on Energy and Sustainable Development (PESD) Director Frank Wolak, Associate DIrector Mark Thurber, and doctoral candidate Trevor Davis led an Electricity Market Simulation Workshop as part of the 2018 Western Electricity Market Forum September 20-21 in Boise, Idaho. The audience was comprised of regulators and regulatory staff as well as policy makers representing states from across the western U.S.
The workshop used the PESD-developed Energy Market Game to explore timely questions about how electricity markets with a high share of renewable resources might function. “The Energy Market Game allows people of diverse backgrounds to understand market dynamics,” Thurber explained. “It can help policy makers and regulators set up incentives for market participants which naturally align with desired outcomes.”
The PESD team ran games with two contrasting policy approaches aimed at ensuring resource adequacy, with workshop participants playing the role of generating companies (“gencos”). In a high-renewable world, the specific resource adequacy concern is that thermal power plants won’t run enough to be profitable, and gencos therefore won’t build or keep enough thermal power plants to back up renewables when wind and sun aren’t available.
In the first game scenario, capacity markets were used to spur gencos to build enough gas-fired power plants to meet demand. Capacity markets straight-out pay gencos for holding generation capacity. They are used in a number of real-world electricity markets, but the games suggested they may not result in the cheapest power for consumers.
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario. Photo Credit: Maury Galbraith, Western Energy Board
In the second game scenario, forward contracts for electricity created the incentive for gencos to build power plants. If a genco doesn’t produce enough electricity to cover its forward contract, it risks having to buy the shortfall out of the spot market at high prices. Forward contracts therefore encourage gencos not only to build adequate generation capacity, but also to bid that capacity into the market at competitive prices. As this second game scenario showed, that can mean cheaper power for consumers.
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PESD team members Frank Wolak, Mark Thurber, and Trevor Davis lead an Electricity Market Simulation Workshop in Boise, Idaho, September 2018.
As an increasing number of California households install solar panels, the current approach to retail electricity pricing makes it harder for the state’s utilities to recover their costs. Unless policymakers change how they price grid-supplied electricity, a regulatory crisis where a declining number of less affluent customers will be asked to pay for a growing share of the costs is likely to occur.
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Politicians in a number of jurisdictions with cap-and-trade markets for greenhouse gas (GHG) emissions or carbon taxes have argued that the evidence is in and the conclusion is clear: Carbon pricing doesn’t work. A number of journalists and environmental groups have jumped on the bandwagon, amplifying a misguided message.
A better understanding of how markets and price mechanisms work might change their minds — and the conversation — on the benefits of carbon pricing.
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Stanford Institute for Economic Policy Research (SIEPR)
Dramatically reducing greenhouse gas emissions from the energy sector is likely to be expensive, but sound public policy can ensure that any investments in this area yield the greatest possible benefit for the climate. PESD uses economic modelling and the Energy Market Game to examine the efficiency of different climate policies in reducing emissions, with real-world politics taken into account.
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.
