Tag Archives: innovation policy

A counter to UC’s skepticism about CCAs

cce-pic

Kevin Novan from UC Davis wrote an article in the University of California Giannini Foundation’s Agriculture and Resource Economics Update entitled “Should Communities Get into the Power Marketing Business?” Novan was skeptical of the gains from community choice aggregation (CCA), concluding that continued centrally planned procurement was preferable. Other UC-affiliated energy economists have also expressed skepticism, including Catherine Wolfram, Severin Borenstein, and Maximilian Auffhammer.

At the heart of this issue is the question of whether the gains of “perfect” coordination outweigh the losses from rent-seeking and increased risks from centralized decision making. I don’t consider myself an Austrian economist, but I’m becoming a fan of the principle that the overall outcomes of many decentralized decisions is likely to be better than a single “all eggs in one basket” decision. We pretend that the “central” planner is somehow omniscient and prudently minimizes risks. But after three decades of regulatory practice, I see that the regulators are not particularly competent at choosing the best course of action and have difficulty understanding key concepts in risk mitigation.By distributing decision making, we better capture a range of risk tolerances and bring more information to the market place. There are further social gains from dispersed political decision making that brings accountability much closer to home and increases transparency. Of course, there’s a limit on how far decentralization should go–each household can’t effectively negotiate separate power contracts. But we gain much more information by adding a number of generation service providers or “load serving entities” (LSE) to the market.

I found several shortcomings with with Novan’s article that would change the tenor. I take each in turn:

  • He wrote “it remains to be seen whether local governments will make prudent decisions…” However, he did not provide the background which explains at least in part why the CCAs have arisen in the first place. Largely over the last 40 years, the utilities have made imprudent procurement and planning decisions. Whether those have been pushed on the utilities by the CPUC and Legislature or whether the IOUs have some responsibility, the fact is that neither institution sees real consequences for these decisions, neither financially or politically. In fact, the one time that a CPUC commissioner attempted to deliver consequences to the IOUs, she was fired and replaced by a former utility CEO. The appropriate comparison for local government decision making is to the current baseline record, not an academic hypothetical that will never exist. And by the way, government enterprise agencies, including municipal utilities, have a relatively good record as demonstrated as by lower electricity rates and relatively well managed, almost invisible capital intensive water and sanitation utilities. The current CCAs have a more extensive portfolio risk management system than PG&E—my calculation of PG&E’s implicit risk hedge in its renewables portfolio is an astounding 3.3 cents per kilowatt-hour.
  • Novan complains that CCAs have “dual objectives.” In fact they have “triple objectives,” the added one to encourage local economic development (sometimes through lower rates). I suggest reading the mission statements of the CCAs that have been created, including the local Valley Clean Energy Authority .
  • It’s not clear that “purchasing locally produced renewable energy will likely lead to more expensive renewable output” for at least two reasons. The first is that local power can avoid further transmission investment. The current CAISO transmission access charges range from $11 to $39 per megawatt-hour and is forecasted to continue to rise significantly (indicating transmission marginal costs are much above average costs). In a commentary on a UC Energy Institute blog, it was revealed that the Sunrise line may have cost as much as $80 per MWH for power from the desert. This wipes out much of the difference between utility scale and DG solar power. Building locally avoids yet more expensive transmission investment to the southeast desert. [I worked on the DRECP for the CEC.] In addition, local power can avoid distribution investment and will be reflected in the IOU’s distribution resource plans (DRP). And second, the scale economies for solar PV plants largely disappears after about 10 MW. So larger plants don’t necessarily mean cheaper, (especially if they have to implement more extensive environmental mitigation.) [I prepared the Cost of Generation model and report for the CEC from 2001-2013.]
  • It’s not necessary that more renewable capacity is needed for local generation. The average line losses in the CAISO system are about 6%, and those are greater from the far desert region. Whether increased productivity overcomes that difference is an empirical question that I haven’t seen answered satisfactorily yet.
  • Novan left unstated his premise defining “greener” renewables, but I presume that it’s based almost entirely on GHG emissions. However, local power is likely “greener” because it avoids other environmental impacts as well. Local renewables are much more likely to be built on brownfields and even rooftops so there’s not added footprints. In contrast there is growing opposition to new plants in the desert region. The second advantage is the avoidance of added transmission corridors. One only needs to look at the Sunrise and Tehachipi lines to see how those consequences can slow down the process. Local DG can avoid distribution investment that has consequences as well. Further, local power provides local system support that can displace local natural gas generation. In fact, one of the key issues for Southern California is the need to maintain in-basin generation to support imports of renewables across the LA Basin interface. [I assessed the need for local generation in the LA Basin in the face of various environmental regulations for the CEC.]

I was on the City of Davis Community Choice Energy Advisory Committee, and I am testifying on behalf of the California CCAs on the setting of the PCIA in several dockets. I have a Ph.D. from Berkeley’s ARE program and have worked on energy, environmental and water issues for about 30 years.

 

 

 

 

Comment on “Renewables May Become the Netflix of the Energy Sector” | Greentech Media

The analogy to Netflix is fascinating. As GTM points out, Netflix started out competing with Blockbuster in video DVDs, but then spilled over into video streaming (BTW, a market that Enron famously thought it could corner in the last 1990s.) So Netflix is now competing with both cable and broadcast companies. One can see how renewables could jump out of just electric service to building space conditioning and water heating, and vehicle fueling. Tesla is already developing those options.

Source: Renewables May Become the Netflix of the Energy Sector | Greentech Media

Problems with “Residential storage can undercut benefits of rooftop solar, says new study” | (A response to a Utility Dive article)

A new study in Nature Energy finds storing rooftop solar can increase emissions and energy consumption.

My thoughts: Here’s the key statement for the finding in this report: “based on today’s Texas grid mix, which is primarily made up of fossil fuels.” If the either the marginal generation on the grid is low or no GHG (e.g., renewables overgeneration which is an increasing problem in California) or the connection to the grid is cut or restricted (e.g., in a microgrid), then this premise doesn’t hold.

This study relies on fossil fueled generation being the marginal energy source. It also focuses solely on operational changes with existing resources. The appropriate frame is looking at the change in generation investment with and without storage, so for example more renewables become cost effective with storage so the overall generation mix changes.

The second problem is that most of the production cost models are yet incapable of capturing reduction in flexible capacity use. That’s why the California Energy Commission has had DNV and LBNL working on modeling those resources. So the emission savings are underestimated.

The third problem is that savings in residual unit commitment (RUC) is underestimated in the models. These are gas units running on standby with no-load, to be available the next day for ramping, load following or reliability. Storage reduces the need for these resources as well. NREL recently released a study on the value of storage that captures this benefit.

If these findings are valid, then the existing Helms pumped storage plant is also increasing GHG emissions. One could go so far as to say that the value of pondage hydropower storage may be so diminished that relicensing conditions that require run of river operations may have little effect on costs and GHG emissions.

Source: Residential storage can undercut benefits of rooftop solar, says new study | Utility Dive

And then this…Trump’s energy plan doesn’t mention solar – The Washington Post

After the release of a study showing solar now employs more than oil, gas and coal combined.

Source: Trump’s energy plan doesn’t mention solar, an industry that just added 51,000 jobs – The Washington Post

Why increasing wealth concentration is bad for the U.S. economy

figure-1-e1455723650211

recent article in the New York Times by Dierdre McCloskey boldly states that the answer to income inequality is to allow unfettered growth through free market forces. Unfortunately, this thesis comes straight out of the anti-Communist 1950s. McCloskey puts up a strawman that proponents of addressing inequality directly want to redistribute all wealth via grabbing all assets of the wealthy. Her version of how the economy has worked, and the policy proposals to address inequality are incorrect.

As I posted previously, we’ve already run the experiment comparing the performance of a market-based economy (West Germany) to a centrally-planned socialist economy (East Germany), and the market-based more than doubled the output of the socialist one. That said, the past West German (and the current German) is a far cry from a “free market” economy. It was and is heavily regulated with substantial redistributive policies. No one is seriously advocating that the U.S. move to a Communist economy (at least not since the 1950s)–they are suggesting that the U.S. consider policies that could redistribute wealth to improve the welfare of almost everyone.

Increased inequality has been found to decrease economic growth, contrary to McCloskey’s implied assertion. Both the OECD and IMF found negative consequences from increased wealth in the top 20% of households. Other studies show that historic U.S. GDP growth has not been impeded by high marginal tax rates, either for individual or corporate taxes.

She also misses the real reason as to why inequality is a concern. She dismisses it as simple envy. But it’s really about relative political and economic power. The wealthy are able to exert more bargaining power in economic transactions, and their greater influence on the political process is well documented.

As a side note, McCloskey appears to grossly underestimating the share of wealth and income held by the wealthiest segment of U.S. society. Her calculation appears to assume that wealth is distributed evenly across all of the income quintiles (“If we took every dime from the top 20 percent of the income distribution and gave it to the bottom 80 percent, the bottom folk would be only 25 percent better off.”) In fact, a recent estimate by the Federal Reserve Board shows that the top 0.1% of U.S. households hold over 40% of the wealth. That means that redistributing the wealth of just 0.1% will lead to a 40% increase in the wealth of everyone else. I’m not advocating such a radical solution, but it does demonstrate the potential scale of redistributive policies. For example, redistributing just 25% of the wealth of the richest 1% could lead to a 10% increase in the wealth of the remaining 99.9%.

 

Big Business Is Killing Innovation in the U.S. – The Atlantic

How big business and overconcentration jams the wheels of innovation in the U.S. This is particularly relevant to encouraging new distributed energy resources on the electric utility grid–the poster child for monopolies.

Source: Big Business Is Killing Innovation in the U.S. – The Atlantic

Reblog: Why Tim Cook is Steve Ballmer and why he still has his job at Apple • The Berkeley Blog

This post seems particularly apt for the electricity industry. IOU CEOs typically are “executioners” not “visionaries,” and this is at the heart of their existential conumdrum.

What happens to a company when a visionary CEO is gone? Most often innovation dies and the company coasts for years on momentum and its brand. Rarely does it regain its former glory. Here’s why. Mi…

Source: Why Tim Cook is Steve Ballmer and why he still has his job at Apple • The Berkeley Blog