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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. (For an update on the duck curve, see Meredith Fowlie’s recent blog: The Duck Has Landed, May 2, 2016)

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The Duck Graph

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.

We don’t want storage just to have storage; we want services that storage providers can supply. But, if there are cheaper ways to achieve the same objectives, policy should be designed to find them.

Catherine Wolfram View All

Catherine Wolfram is Associate Dean for Academic Affairs and the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.

Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.

She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.

61 thoughts on “What’s the Point of an Electricity Storage Mandate? Leave a comment

  1. High energy prices create poverty. First, because the customer (or society) has less money to spend on everything else, and second, because use of energy is directly related to quality of life. Thirty-one cents per kilowatt-hour is already far too high.
    Supply-side pricing based on the availability of power from a source chosen a priori only makes things worse. Arbitrarily saddling people with higher costs unless they make changes in the way they live to suit your convenience, or worse yet your ideas of propriety, is deeply unjust. Not only are you punishing people for the way they choose to live, you are punishing them for things they may not be able to do anything about. If someone’s work schedule means that he can only do laundry and cook in the early evening, then under such a pricing scheme, he has to pay far more in order to live than someone whose schedule allows him to do those things around new. Common decency and respect calls for retail power prices to be static.
    Sufficient storage would allow flat pricing, but it would still entail very large costs, just to make effective use of an already-expensive power source. All the while, there is a well-proven source which fits into existing power grids without disruption, uses no fossil fuels, is sustainable for many generations into the future, and produces power at a retail cost of five cents per kWh.

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