What's the Point of an Electricity Storage Mandate?
An aptly named picture – the “duck graph” – is captivating the California energy policy world. It depicts electricity demand net of projected renewable generation (“net load”) on a representative day in the not too distant future.
One point of concern is the duck’s long neck, representing a 14,000 MW swing in net load in a roughly one hour period from 5 to 6PM. Currently, the largest swing system operators typically have to deal with is less than half that size. Adding insult to injury, the duck graph swing is projected to happen in shoulder months like March or October, when total system load will be low.
The duck graph encapsulates the collective uncertainty about how the electricity system will operate as the state adds more and more renewables. If the California electricity system has significant solar capacity, what happens on a typical March weekday when the sun gets low on the horizon just as office buildings are turning on their lights? How will system operators deal with a wild swing in net load as they lose solar generation?
One answer policymakers are offering is electricity storage. For example, the California Public Utilities Commission is in the process of implementing legislation requiring it to consider electricity storage procurement mandates.
I am accustomed to thinking about electricity storage as an arbitrage play – capture energy in the middle of the night when prices are low, store it until the middle of the day when electricity prices typically double or even triple relative to 12 hours ago and then sell at a substantial margin.
But, regulators seem interested in storage primarily as a resource to provide the capacity necessary to address the operational issues associated with the duck graph. (Why the duck graph is not projected to generate very low energy prices at the duck’s belly and very high energy prices at the duck’s neck could be the subject of another post.)
What gives me pause is that the policymakers seem to be legislating a means to an end rather than the end itself. If we want to address the duck graph, why not set up incentives that reward behaviors and technologies that help smooth the worrisome swing in net load from 5 to 6 PM?
For example, why take load as given? In other words, why subsidize storage operators to smooth net load fluctuations before giving consumers the ability to shift their loads?
Until my family switched to the PG&E SmartRate (inspired by Severin’s blog post), we had no incentive to run the dryer after 8PM instead of from 5 to 6PM. We paid $.31 per kWh no matter when we dried our clothes.
Now that we are on the SmartRate, we try to keep our electricity consumption low from 2 to 7 PM on SmartDays (roughly, the 12 hottest weekdays each summer). As we tried to figure out how to do that, we learned that our dryer is a major part of our midday load, so we try to keep it off when prices spike.
The SmartRate was not designed to address renewables integration. The problems highlighted by the duck graph are most pronounced in spring and fall months, when the sun sets before the daytime load subsides. Presumably, though, similar dynamic pricing schemes could incentivize consumers to shift their load to help smooth the duck graph. Given that the vast majority of households are starting from prices that do not vary at all over the course of the day, week or month, I have to believe that there’s room for improvement.
Ideally, regulators should pit storage providers against pricing schemes that reward consumers for shifting their load, and any other technologies that can help shorten the duck’s neck. That way, the market can make the call about the best way to integrate more renewables.
Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, Co-Director of the Energy Institute at Haas and Co-Director of the E2e Project. She received an AB in Economics from Harvard University and a PhD in Economics from MIT. Before joining the faculty at UC Berkeley, she was an assistant professor of economics at Harvard University. Her ...
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