This conference is supported by Grant #G-2018-10097 from the Alfred P. Sloan Foundation
Long-Term Resource Adequacy in Wholesale Electricity Markets with Significant Intermittent Renewables Growing amounts of intermittent renewable generation capacity substantially increases the complexity of determining whether the industry has sufficient generation resources to meet hourly demands throughout the year. As the events of August 2020 in California and February 2021 in Texas demonstrate, this can have large economic and public health consequences. An empirical analysis of these two events demonstrates that similar supply shortfall events are likely to occur in the future without a paradigm shift in determining generation adequacy for an electricity supply industry. An alternative approach that explicitly recognizes the characteristics of different generation technologies is outlined and its properties explored relative current approaches.
Davis, Holladay, and Sims summarize the history of U.S. coal-fired generator retirements over the last decade, describe planned future retirements, and forecast the remaining operating life for every operating coal-fired generator. Nearly one-third of the coal fleet retired during the 2010s and a quarter of the remaining capacity has announced plans to retire. They summarize the generator technology and location trends that are correlated with the observed retirements. The researchers then describe a theoretical model of the retirement decision coal generator owners face. Davis, Holladay, and Sims use retirements from the last decade to quantify the relationships in the model for retired plants. They use a machine learning algorithm to predict the decisions of active generators based on the relationship observed in retired units. Davis, Holladay, and Sims simulate future coal and electricity prices and identify which generators retire at what time in a business-as-usual policy scenario, under a coal subsidy, and under a carbon tax. Their model predicts that three-quarters of coal generation capacity will retire in the next twenty years, with most of that retirement concentrated in the next five years. Policy has limited ability to affect retirement times. A $20 per MWh electricity subsidy extends the average life of a generator by six years. A $51 per ton carbon tax brings forward retirement dates by about two years. In all scenarios, a handful of electricity generators remain on the grid beyond their twenty-year forecast horizon.
Annicchiarico, Carattini, Fischer, and Heutel study the relationship between business cycles and the design and effects of environmental policies, particularly those with economy-wide significance like climate policies. First, the researchers provide a brief review of the literature related to this topic, from initial explorations using real business cycle models to New Keynesian extensions, open-economy variations, and issues of monetary policy and financial regulations. Next, Annicchiarico, Carattini, Fischer, and Heutel provide a list of the main findings that emerge from this literature that are potentially most relevant to policymakers, including the impacts of policy on volatility and how to design policy to adjust to cycles. Finally, they propose several important remaining research questions.
Electrification of transportation and buildings to reduce greenhouse gas (GHG) emissions requires massive switching from natural gas and refined petroleum products. All three end-use energy sources are mispriced due in part to the unpriced pollution they emit. Natural gas and electricity utilities also face the classic natural monopoly challenge of recovering fixed costs while maintaining efficient pricing. In this paper, Borenstein and Bushnell study the magnitude of these distortions for electricity, natural gas, and gasoline purchased by residential customers across the continental United States. They find that the net distortion in pricing electricity is much greater than for natural gas or gasoline. In most of the country, residential retail electricity prices are well above social marginal cost (the sum of private marginal cost and unpriced externalities), while in some areas with large shares of coal-fired generation, prices are below SMC. The researchers then analyze the impact of these pricing distortions on the incentive to adopt electric space heating, water heating, and vehicles in California. Combining their estimates of the gap between price and SMC for each of the fuels with a large survey of California households' energy use, they calculate the distribution of annual fuel costs for space heating, water heating, and electric vehicles under actual pricing and under counterfactual prices equal to SMC. Borenstein and Bushnell find that moving prices for all three fuels to equal their SMC would significantly increase the incentive for Californians to switch to electricity for these energy services.
This paper identifies and explores major determinants of electric vehicle (EV) demand in order to inform widely-held aspirations for market growth. Archsmith, Muehlegger, and Rapson use a simple discrete choice framework to estimate the contribution of intrinsic (no-subsidy) EV demand growth, net-ofsubsidy EV cost declines (e.g. batteries) and government subsidies to future EV market share in the United States from 2020-2035. Geographic variation in preferences for sedans and light trucks highlights the importance of viable EV alternatives to conventional light trucks; belief in climate change is highly correlated with state-level EV adoption patterns; and the first $500 billion in cumulative nationwide EV subsidies is associated a 7-10 percent increase in EV market share in 2035, an effect that diminishes as subsidies increase. The rate of intrinsic demand growth dwarfs the impact of demand-side subsidies, highlighting the importance of efficient allocation of public resources.
Electric vehicles are declining in cost so rapidly that they may claim a large share of the vehicle market by 2030. This paper examines a set of practical regulatory design considerations for fuel-economy standards or greenhouse-gas standards in the context of highly uncertain electric vehicle costs in the next decade. The analysis takes a cost-effectiveness approach and uses analytical modeling and simulation to develop insight. Gillingham shows that counting electric vehicles under a standard with a multiplier or assuming zero upstream emissions can reduce electric vehicle market share by weakening the standards. Further, there are tradeoffs from implementing a backstop conventional vehicle standard along with a second standard that also includes electric vehicles, but such a backstop offers the possibility of ensuring that low-cost conventional vehicle technologies are exploited.