This paper estimates changes in electricity generation costs caused by the introduction of market mechanisms to determine output decisions in service areas that were previously using command-and-control-type operations. I use the staggered transition to markets from 1999- 2012 to evaluate the causal impact of liberalization using a nationwide panel of hourly data on electricity demand and unit-level costs, capacities, and output. To address the potentially confounding effects of unrelated fuel price changes, I use machine learning methods to predict the allocation of output to generating units in the absence of markets for counterfactual pro- duction patterns. I find that markets reduce production costs by $3B per year by reallocating output among existing power plants: Gains from trade across service areas increase by 20% based on a 10% increase in traded electricity, and costs from using uneconomical units fall 20% from a 10% reduction in their operation.
EXCERPT FROM THE EXECUTIVE SUMMARY:
This Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the proposed Emission Guidelines for Greenhouse Gas Emissions from Existing Stationary Sources: Electric Utility Generating Units (herein referred to EGU GHG Existing Source Guidelines). This RIA also discusses the potential benefits, costs and economic impacts of the proposed Standards of Performance for Greenhouse Gas Emissions from Reconstructed and Modified Stationary Sources (EGU GHG Reconstructed and Modified Source Standards).
ES.1 Background and Context of Proposed EGU GHG Existing Source Guidelines Greenhouse gas pollution threatens Americans' health and welfare by leading to longlasting changes in our climate that can have a range of severely negative effects on human health and the environment. Carbon Dioxide (CO2) is the primary greenhouse gas pollutant, accounting for nearly three-quarters of global greenhouse gas emissions and 84 percent of U.S. greenhouse gas emissions. Fossil fuel-fired electric generating units (EGUs) are, by far, the largest emitters of GHGs, primarily in the form of CO2, among stationary sources in the U.S. In this action, the EPA is proposing emission guidelines for states to use in developing plans to address greenhouse gas emissions from existing fossil fuel-fired EGUs. Specifically, the EPA is proposing state-specific rate-based goals for carbon dioxide emissions from the power sector, as well as emission guidelines for states to use in developing plans to attain the statespecific goals. This rule, as proposed, would set in motion actions to lower the carbon dioxide emissions associated with existing power generation sources in the United States.
The potential benefits of wind power as a clean, renewable, economic, domestically avail- able power source have captured the attention of energy policy leaders, consumers, and the electricity industry. The United States (US) has tremendous wind energy resources. California is viewed as one of the leaders in the modern US wind industry in terms of capacity installed; however, 16 other states have even greater wind potential. Only a small portion of that potential has been tapped. The US currently derives approximately 1% of its electricity from wind power, whereas parts of Europe use wind power to meet up to 25% or more of their electricity needs.
In 2005, wind power in the US grew rapidly and became more competitive as volatile natu- ral gas prices increased and crude oil prices reached record highs. Improved technology, federal tax credits and public policies that encourage utilities to use clean energy sources helped fuel the growth from coast to coast. Projections are that US wind capacity could reach 100 gigawatts (GW) by 2020, meeting 6% or more of national electricity needs.1
The objective of this paper is to examine the transmission policy issues around wind and renewable sources of generation. Reliability and commercial issues are reviewed, both in the US and abroad, and recommendations are provided for effective integration of wind sources into the US electric system. Key findings of this paper are:
■ Over-reliance in the US on any one fuel type results in reliability and economic consequences, highlighting the benefits of diversified energy resources.
■ Wind generation is becoming an economic power source, and has the further benefit of mitigating environmental climate change concerns.
■ In order to tap the vast potential of new generation sources such as wind power in the US, we must address the existing challenges in generator interconnection and trans- mission cost and planning policies.
■ The current US transmission system was not built to support competitive regional markets nor is it sufficient to integrate planned and potential new generation sources; additional transmission infrastructure will be required.
■ Operating techniques for intermittent generation resources, properly structured market rules, and effective transmission policies for regional planning, cost allocation, and cost recovery and incentives will help to facilitate wind power as well as other new sources of generation.
■ Transcos (for-profit independent transmission companies) focus on delivering low-cost reliable energy to consumers by facilitating robust electricity markets and providing transmission access to new generation sources including renewable energy. Because of their for-profit structure, a further advantage is that Transcos can be held firmly accountable by regulators for system performance and operating costs.
■ Robust transmission infrastructure policies in countries outside the US have helped them progress toward achieving their goals for renewable sources of energy while maintaining system reliability. The challenges to effective integration of wind power in the US are not insurmountable; they can be addressed with industry, public, and regulatory commitment.
■ Several countries, including Denmark, Germany, Spain and the UK have had coordinated government efforts and policies to facilitate wind power, and these are proving very effective. Some areas of North America, such as Alberta and Texas, are also employing planning and cost allocation policies that are helpful to new generation sources.
Specific recommendations for changes needed to take advantage of US renewable resources to the benefit of electricity market users and customers are:
■ Employ greater use of available operational techniques, such as wind forecasting tools, for reliable operation of wind resources;
■ Properly structure market rules to address imbalance and capacity value in a manner that reliably and economically facilitates renewable generation sources;
■ Engage industry and stakeholders in long-term, robust, and comprehensive regional planning for transmission infrastructure, including infrastructure needed for new sources of generation;
■ Incorporate economic and customer cost metrics, in addition to reliability, into regional planning processes;
■ Implement workable cost-allocation and recovery mechanisms to recoup the costs of transmission infrastructure improvements;
■ Provide regulatory incentives for transmission infrastructure investment and independent ownership/operation of the nation’s transmission system.
Excerpt from the Introduction:
The ERCOT Independent System Operator (ISO) is the independent, not-for-profit organization responsible for the reliable transmission of electricity across Texas' interconnected 37,000-mile power grid. The ERCOT ISO has the responsibilities of ensuring reliable power grid operations in the ERCOT region jointly with the electrical energy industry organizations that operate within that region, ensuring open access to transmission ERCOT wide and distribution systems in areas permitting competition, ensuring the timely conveyance of market information to market participants, and ensuring accurate accounting of power produced and delivered.
To support these roles the ERCOT ISO focuses on the development, implementation, and ongoing management of reliable market and operating systems, transmission planning, retail mechanics supporting retail choice, accountable and reliable wholesale settlement and billing systems, and financial risk strategies. 4 ERCOT members serve about 85% of the electrical load in Texas, and have an overall generating capacity of approximately 75,000 Megawatts (MW). Because ERCOT is located entirely within Texas, the Public Utility Commission of Texas (PUCT) is the principal regulatory authority. As of January 2005, ERCOT membership consists of 17 Industrial Consumers, 3 Retail/Commercial Consumers, 41 Electric Cooperatives, 16 Independent Generators, 19 Independent Power Marketers, 36 Independent Retail Electric Providers, 8 Investor Owned Utilities, and 19 Municipal Owned Utilities.