The Program on Energy and Sustainable Development is part of the Freeman Spogli Institute for International Studies.
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.
Abstract
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.
We report on the results of a field experiment in Puebla, Mexico that informed randomly-selected households facing a nonlinear price schedule about how different electricity-consuming actions might change their electricity bills. Households that received this 20-minute, in-person intervention reduced their electricity use, with much of this reduction driven by those that paid the highest marginal price for electricity. The estimated impacts were durable with no observed rebound for at least a year. Households with less educational attainment reduced use the most, consistent with the conclusion that the intervention imparted new knowledge to consumers that led to this observed behavior change. The high rate at which customers accepted the intervention, the resulting consumption decrease, and low implementation costs make this intervention cost-effective relative to several previous energy conservation campaigns in Mexico.
Solar photovoltaic (PV) products are touted as a leading solution to long-term electrification and development problems in rural parts of Sub-Saharan Africa. Yet there is little available data on the interactions between solar products and other household energy sources (which solar PVs are often assumed to simply displace) or the extent to which actual use patterns match up with the uses presumed by manufacturers and development agencies. This paper probes those questions through a survey that tracked approximately 500 early adopters of solar home systems in two off-grid markets in Africa. We find that these products were associated with large reductions in the use of kerosene and the charging of mobile phones outside the home. To a lesser extent, the use of small disposable batteries also decreased. However, solar home systems were, for the most part, not used to power radios, TVs, or flashlights. We also did not observe adopter households using these solar products to support income-generating activities.
Solar lanterns are promoted across rural Sub-Saharan Africa to improve both lighting in homes and educational outcomes. We undertake a randomized controlled trial in Zimba District, Zambia, to evaluate whether solar lanterns help children study more effectively and improve academic performance. Our research design accounts for potential income effects arising from the giveaways of lanterns and also “blinds” participants to the study’s purpose. We find no evidence that receipt of a lantern improved performance on important national examinations (even though an ex poststatistical power analysis demonstrates that the research should detect economically significant impacts, if present). We also do not observe impacts on self-reported study habits. Several features of Zimba District that are likely to exist in other developing regions appear to drive our results. First, flashlights are the dominant lighting source in rural Zambia rather than traditional options like kerosene lamps or candles. In such environments, solar lights may hold only limited appeal for prospective users. Second, our survey data suggests that other major barriers to educational attainment likely render improved energy access (whether through solar lanterns or otherwise) a relatively unimportant educational input.
PESD has developed a web-based game that allows players to take on the roles of electricity generating companies (“gencos”), electricity retailers, or vertically-integrated utilities in electricity markets with different market rules.
Over 1 billion people around the world lack access to electricity, and over 2 billion still cook with traditional biomass fuels, which cause significant mortality through respiratory disease. We study the factors affecting uptake of “modern” forms of energy like grid-supplied electricity, solar lanterns and solar home systems, and LPG (liquefied petroleum gas) as a substitute for biomass fuel. We also run randomized, controlled trials (RCT) to study the effect of these new energy sources on social welfare outcomes—like health, income, and educational attainment.