A study in the Journal of the Association of Environmental and Resource Economics entitled “External Impacts of Local Energy Policy: The Case of Renewable Portfolio Standards” finds that increasing the renewable portfolio standard (RPS) in one state reduces coal generation in neighboring states through trading of renewable energy credits (RECs). This contrasts with findings on greenhouse gas emission “leakage” under California’s cap and trade program put forth by the authors at the Energy Institute at Haas at the University of California here and here.
These latter set of findings has been used California Public Utilities Commissioners to argue against the use of RECs and implication that community choice aggregators (CCAs) are not moving forward increased renewables generation. This new study appears to land on the side of the CCAs which have argued that even relying on RECs in the short run have a positive effect reducing GHG emissions in the West.
As one of my civic activities, I sat on the City of Davis Utility Rates Advisory Commission. In my final action with that commission, along with Elaine Roberts-Musser and Lorenzo Kristov, we prepared what might be a first-of-its kind enterprise fund reserve policy for the four utilities managed by the city. Up to this point, the URAC had been presented with rates development reports that appeared to use somewhat arbitrary, and inconsistent, methods of setting reserve targets. The city also appeared to be holding tens of millions of dollars in those funds that might be unneeded to meet expected reserve requirements.
With the City Council’s approval and support from the staff and the Finance and Budget Commission, we identified the elements that needed to be covered by reserves, including working capital, debt covenants, unanticipated capital replacements, and revenue-expense volatility. The first two elements were fairly straightforward to calculate, and unanticipated replacements didn’t appear to be significant. It was the analysis of the relationship of revenue and expense volatility where the report innovates. Previous studies had used some variation of a percentage of capital assets with no underlying explanation. Our solution was to derive an estimate of the outerbound of an annual revenue shortfall for a utility as buffer to allow rate or management adjustments.
In the end, the target reserves generally didn’t change much, but the City now has a transparent target that it can use to determine when it has excess funds that might be used in different fashions instead.
M.Cubed produced four reports for Sustainable Conservation on using floodwaters to recharge aquifers in California’s Central Valley. The first is on expected costs. The next three are a set on the benefits, participation incentives and financing options for using floodwaters in wetter years to replenish groundwater aquifers. We found that costs would range around $100 per acre-foot, and beneficiaries include not only local farmers, but also downstream communities with lower flood control costs, upstream water users with more space for storage instead of flood control, increased hydropower generation, and more streamside habitat. We discussed several different approaches to incentives based on our experience in a range of market-based regulatory settings and the water transfer market.
Don Cameron at Terranova Ranch started doing this deliberately earlier this decade, and working with Phil Bachand and UC Davis, more study has shown the effectiveness, and the lack of risk to crops, from this strategy. The Department of Water Resources has implemented the Flood-MAR program to explore this alternative further. The Flood-MAR whitepaper explores many of these issues, but its list of beneficiaries is incomplete, and the program appears to not yet moved on to how to effectively implement these programs integrated with the local SGMA plans. Our white papers could be useful starting points for that discussion.
Two recent reports highlight the benefits of using “reverse auctions”. In a reverse auction, the buyer specifies a quantity to be purchased, and sellers bid to provide a portion of that quantity. An article in Utility Dive summarizes some of the experiences with renewable market auctions. A separate report in the Review of Environmental Economics and Policy goes further to lay out five guidelines:
Encourage a Large Number of Auction Participants
Limit the Amount of Auctioned Capacity
Leverage Policy Frameworks and Market Structures
Earmark a Portion of Auctioned Capacity for Less-mature Technologies
Balance Penalizing Delivery Failures and Fostering Competition
This policy prescription requires well-informed policy makers balancing different factors–not a task that is well suited to a state legislature. How to develop such a coherent policy can done in two ways. The first is to let the a state commission work through a proceeding to set an overall target and structure. But perhaps a more fruitful approach would be to let local utilities, such as California’s community choice aggregators (CCAs) to set up individual auctions, maybe even setting their own storage targets and then experimenting with different approaches.
California has repeatedly made errors by overly relying on centralized market structures that overcommit or mismatch resource acquisition. This arises because a mistake by a single central buyer is multiplied across all load while a mistake by one buyer within a decentralized market is largely isolated to the load of that one buyer. Without perfect foresight and a distinct lack of mechanisms to appropriately share risk between buyers and sellers, we should be designing an electricity market that mitigates risks to consumers rather than trying to achieve a mythological “optimal” result.
The media and the public appears to have confused the Green Party’s platform calling for 100% renewable energy by 2030 with the goals in the Joint Resolution for a Green New Deal introduced by Senator Edward Markey (D-MA) and Representative Alexandria Ocasio-Cortez (D-NY). The Joint Resolution calls for a “10-year national mobilization,” but contains no deadlines other than zero greenhouse-gas emissions by 2050, which is 30+ years from now. Given that we went from horse and buggies and wood stoves to widespread automobile use and electrification in 30 years at the beginning of the twentieth century, such a transformation doesn’t seem imposing.
A just released study on the effects of the Berkeley, California soda tax of one cent per ounce found that soda consumption has fallen 52% over the last four years. That is a remarkable price elasticity. Assuming a 20-ounce bottle costs $1.99, with a tax of 20 cents, that implies a price elasticity of -5. In other words, for every 1% o price increase, demand falls 5%. The study relied on household surveys, which are not always reliable about consumption quantities, so it would be interesting to see actual sales data.
Evidence of how job training is lagging behind job needs. The U.S. Labor Department reported 7.3 million openings, but only 6.3 million people were actively seeking jobs and unemployed. Employers are not able to find the technically-trained individuals that they need for the changing economy. Only a small portion of this shortfall can be met through training in our standard educational institutions. We should be looking for other retraining solutions such as those in Europe.