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Electricity Outages Lead to Substantial Backup Generator Purchases

Preliminary survey results from California suggest that long outages are leading people to buy backup generators, possibly instead of rooftop solar.

The COVID-19 pandemic has shone a very bright light on the importance of making well-informed tradeoffs. Imagine how comforting it would be if every mayor, governor and national leader had a calculator that told them exactly how many days of lockdown they should enforce to balance the public health risks against the economic losses from shutdowns?  

Californians faced another set of tradeoffs last fall with the wildfire-related electricity outages. The state’s utilities shutoff power to millions of people for multiple days during wildfire season, arguing that de-energizing the electricity grid, while inconvenient, would prevent larger losses from fires caused by the electricity system. Just as we’re seeing with COVID-19 shutdowns, a number of commenters wondered whether these “Public Safety Power Shutoffs” (PSPS) were really worth it.

Map showing projected outage areas (in turquoise).

Revealing the Cost of Blackouts

Unfortunately, the people making the decisions about the blackouts were pretty much – shall we say – in the dark. We know very little about the costs of power outages to the economy. Recognizing this, colleagues Fiona Burlig, Duncan Callaway and Will Gorman and I have set out to try to fill some of the knowledge gaps. 

One way to measure the costs of outages is to try to identify the major cost categories, like wasted food, health impacts, business’ lost sales, etc., then measure those costs and add them all up. Think of this as a bottom-up approach. 

Another way, which I will talk about today, is to try to understand how much customers are willing to pay to avoid all of the costs associated with future outages. This is what economists call a “revealed preference” approach. Basically, if a number of customers race out to buy backup generators after the outages, this is a summary measure of how costly the outages were to them: so costly that they’re willing to spend thousands of dollars to avoid the effects of the next one.

My colleagues and I, supported by a fantastic team of undergraduates, have been surveying residential customers in California to understand their experiences with the outages. In order to construct a revealed preference measure of economic losses, we’re asking people a series of questions about their investments in non-grid power sources.

UC Berkeley undergraduates Amy Li, James Wang and Elise Angelich conducting surveys. Photo by Kathy Nagel.

Which Actions Were Due to the Outages?

To be able to say that the outages are what led people to buy generators, we have to try to understand what they would have done absent the outages (i.e., establish the counterfactual). One idea is to compare them to people who didn’t experience outages, but we have to tread carefully. For instance, if we just compared people who live in the Sierra foothills — many of whom lost power for days — to those who live in downtown LA — many of whom didn’t have any outages — the resulting difference in generator ownership would reflect both differences in outage experiences as well as underlying differences between foothillers and Angelinos. Maybe there are a lot more stores that sell generators near the foothillers, for instance. This wouldn’t necessarily say anything about the impacts of the outages.

With the PSPS, though, neighbors – likely similar to one another in many ways – had very different outage experiences. For example, my neighbors, Fred and Evelyn, who live a block and a half away, experienced more than 50 hours of outage while we didn’t experience any. This dramatic difference had to do with the configuration of the distribution grid and which circuits were turned off. But, along a lot of other dimensions, we’re pretty similar to Fred and Evelyn – we both have two kids (who went to the same pre-school), shop at the same stores, etc. So, to guess what Fred and Evelyn would have done if they hadn’t experienced outages, we can look at what their neighbors, like my family, did. This is the approach we’re taking: comparing households who experienced PSPS-related outages to their nearby neighbors who didn’t.

Early Results

We’re still completing the survey, but here are a couple preliminary results from the first 320 people we’ve talked to (they’re spread around the state, but all live close to the borders of the outages):

  1. Lots of backup generators. Among the people who experience outages, we’re seeing almost 15% of them buying backup generators in the 6 months since the outages. On average, they’re paying over $1800 for those generators. This is a lot more generator purchases than I would have expected from residential customers. We need to dig into this number further and understand how representative the people who are answering our survey are, but it suggests the costs of outages are pretty high.
  2. Backup generators instead of solar. If you believe that our comparison group (e.g., my family) describes what people (e.g., Fred and Evelyn) would have done had they not faced the outages, then the figure below suggests that people who experience outages are buying generators instead of home solar.7 percent of the people in the no outage group report installing rooftop solar since the outage while only 2 percent in the outage group have done so. It’s not immediately clear why we’re seeing this pattern. Maybe the costs of installing a solar system that will also provide backup power (with battery backup and a smart inverter) are prohibitive for people who really value having a backup electricity source?
  3. Outages are painful. One of the valuable things about doing surveys instead of using data that others have collected is that you get to hear the stories behind the numbers. We’ve heard from an elderly woman who was hospitalized after she fell grasping for her flashlight in the dark, a couple who couldn’t access their cell phone to report a medical emergency during the outage. These are heartbreaking and help put a human face on the economic figures. We’re also planning to complement our surveys with archival data – on outcomes like hospitalizations, business closures, and foot traffic from cell phones – but the human stories emphasize just how much some people’s lives were impacted.

I started this blog post talking about making informed tradeoffs. Armed with accurate measures of the value that customers place on reliable electricity, we will be able to help policy makers and utilities decide how much investment to make in outage-prevention technologies – things like remote sensing, undergrounding lines, strategically placed micro-grids on the utility system, more vegetation management, more line inspections, etc.

It’s likely that there are cheaper and more environmentally benign ways to keep the electricity on and prevent fires than having customers install their own backup generators. When the utility makes an investment, it preserves power for all its customers – rich, poor, residential, commercial. These utility-side investments are kind of like vaccines for the electricity system, but some are a lot more expensive than others, so we need to figure out how many of them are worth it. Based on our results so far, though, I suspect that there’s a lot more investment that does make sense.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Wolfram, Catherine. “After a Long Electricity Outage, Substantial Investment in Backup Generators” Energy Institute Blog, UC Berkeley, May 26, 2020, https://energyathaas.wordpress.com/2020/05/26/electricity-outages-lead-to-substantial-backup-generator-purchases/

 

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.

22 thoughts on “Electricity Outages Lead to Substantial Backup Generator Purchases Leave a comment

  1. I believe I responded to that survey. I am an somewhat elderly disabled single woman in Northern California. The PSPS in Oct lasted for 4 days here. I am capable of living alone but if not able to go outside and start or maintain a gasoline powered portable generator ($600). Nor do I have who would be available to come over to start and maintain it. I tried four different installers recommended through the maker of the generator and every one of them tried to sell me a solar system rather then provide me the backup generator. My electric costs average under $80 a month so it was not feasible for me to go with a solar system. Nor were any of them able to provide me with the backup generator for under $12,000. I am not wealthy and on a limited income a I am retired.
    I found the same generator through home depot that I could purchase privately and through their website found a installer who gave me a quote for just the installation and agreed that I do not need solar. Going this route it will be just under $10,000. I feel as though I don’t have any other option.
    Suzanne

  2. Catherine, forcing Californians to become dependent on gas- or propane-powered generators is the worst possible outcome of the wildfires, in terms of climate change. Instead of being able to lower emissions en masse at central generating plants, so-called “distributed energy resources” – permitting individuals or communities to decide how they’ll do their part for climate change – not only puts self-interest in charge of solving a public problem (a non-starter), it eliminates the myriad efficiencies of scale available from a central generating plant.

    “Who could have seen that coming? Everyone was supposed to use solar panels to generate their electricity!” Unless we stop this insane move to DER, it will be a disaster, and it’s exactly what Californians for Green Nuclear Power has been predicting for a long, long time.

  3. I wrote a report for Vote Solar last year on the potential for solar + storage to provide “clean resilient energy” in the face of public safety power shutoffs. Because they are modular technologies, solar + storage can provide energy resilience in a variety of configurations, from streetlights to homes to critical facilities to small towns or campuses.

    I worked with Energy Sage to calculate the cost tradeoffs of backup generators (BUGs) versus solar + storage systems on a typical warm-climate home in California. Energy Sage runs a shopper’s marketplace for solar in California, so they have access to a growing database of bid prices. We looked at costs over a 20 year period, rather than the first-costs that so many people get stuck on.

    Both systems can be configured to provide power during outages, so the value of reliability is the same. But because solar + storage provide value every day, and the BUG does nothing until the power goes out, the solar+storage system has the potential to pay for itself. The BUG is all cost, on top of electricity purchased from the utility. (And to be honest, the solar provides the savings that pay for the batteries, which are not yet cost effective.)

    The bottom line was that the 20 year cost of the BUG + residential electricity purchases was $59,100 while the solar + storage + residential electricity purchases was $36,950, for a savings of $22,000.

    All the details are at https://votesolar.org/usa/california/updates/resilientca/

    • Your analysis brought up another thought on this survey: What are the political persuasions of the different respondent classes? Those experiencing outages tend to live in rural areas, which also tend to be Republican, which also tend to deny the risks of climate change, whereas those in urban areas don’t experience the same level of outages and have opposite political views. So what might be showing up in the survey responses isn’t so much a direct economic valuation but rather a more complex response colored by differing world views.

  4. How does the solar adoption in the untreated group compare to general solar adoption trends in CA? Are these people buying battery storage also, or just rooftop solar?

  5. The $1800 average price for the home generator cited in the article surprised me. Such a number could reflect two completely different types of backup generators — 1) a permanently installed backup generator fueled by natural gas (from NG distribution grid) or propane with an automated switch to the main panel that enables it to supply power when utility power goes off ; 2) a cart-mounted or hand-carried portable generator fueled with gasoline that is used with extension cords to power refrigerators, freezers, and a few critical end uses when power is out. The first type involves significant installation costs — indeed installation costs alone can far exceed $1800 — and costs a lot more than the second type While a type 1 backup could be expensive enough to crowd out solar for a consumer on a budget, the costs of the much cruder type 2 option ($500 to $1000) doesn’t seem enough to do that. It might be interesting to ask respondents what type of backup they have acquired as well as its price, and see how that affects solar uptake.

    • An additional thought on the “scale” of the backup unit is that it also affects the amount of load that can be met. As you point out a small generator can cover a few hundred kilowatts of load while a true BUG can carry the full load. Similarly, a solar + storage unit can carry a substantial load, but may have to be regulated to extend the storage period. So the the denominator–the actual energy provided relative to the lost energy–must also be accounted for in this survey to get to the true valuation.

  6. Freeman Sullivan conducted a set of studies for the IOUs on outage costs several years ago. They were filed at the CPUC in SCE’s and PG&E’s GRCs.

    Buying generators is much more likely among the wealthy. I hope your survey is designed to capture those income/wealth categories. (Note that seniors have lower income but much higher wealth and its important to capture that distinction in this case.) That raises two questions: 1) Should we be building a utility network that serves the values of a small segment of the population that can afford to buy its own protections? 2) What’s the value without this segment that is self insuring and relies on society at large for protection?

    And as pointed out by several, including Sev Borenstein, our best backup generator is sitting in the driveway. The technology is ready and only faces institutional barriers.

  7. While we may want to imagine people responding to PSPS by considering solar purchases, there are several fundamental problems with that:
    1. Solar is not dispatchable. So functionally it does not mitigate PSPS. The residential customer with solar is still sitting in the dark in the evening, still has spoiled food in the fridge.
    2. A residential solar+storage installation would cost >20x more than just buying an emergency generator as behind the meter insurance against PSPS.

    Also, we really should to consider whether we would want more customers running out to purchase behind the meter generation to operate in island mode. If that were to happen at scale, it will cause all kinds of utility planning and rate case disruption. I’d suggest you look back at what happened during the first wave of residential solar installations c. 2010 when rate bases and rate cases were being destroyed (esp. SCE). The wealthy will get off of the grid, leaving all kinds of equity baggage for the remaining customers.

    • “If that were to happen at scale, it will cause all kinds of utility planning and rate case disruption.”

      You’re assuming that we need to protect shareholders. What other industry has its stranded investment in excessive capacity protected? The utilities have been warned for at least the last decade, if not longer, that they have been overinvesting. We need lots of disrupting to send a wake up call to utility commissions that the world is changing.

      • No, anonymous is assuming we need to protect the environment. There is not one facility you label a “stranded investment” in California which is not serving families more efficiently and with fewer emissions than the same families with a few solar panels and a gas generator on the side of the house.

        We need to disrupt the disruptors, and go back to the future. Why? History-challenged renewables advocates are incapable of understanding this is a problem already solved more than a century ago.

        • “There is not one facility you label a “stranded investment” in California which is not serving families more efficiently and with fewer emissions than the same families with a few solar panels and a gas generator on the side of the house.”

          The point of this blog is that families are using solar panels OR gas generators, not AND.

          There are two kinds of stranded assets in California utilities’ investment portfolios. The first is from generation, which for PG&E is 50% Diablo Canyon and 50% poorly negotiated renewable contracts signed prior to 2015, and for SCE is all poorly negotiated renewable contracts. In contrast, CCAs have signed much more cost effective generation portfolios that cost almost 50% less than the the IOUs. The set is in unused distribution network infrastructure built to meet load growth that never materialized after 2006. This amount is more difficult to quantify, but based on reviews of GRC filings over the years, this has been about $2 billion extra in each 3 year GRC cycle.

          All of this stranded investment arises from overreliance on centralized decisionmaking in an environment with little competitive pressure. The IOUs have aggressively used legal and regulatory means to fight any competition or additional oversight.

  8. Catherine — Good post: the value of reliability to an end user (a use value not an exchange value.) What is the fuel for the back-up generators you are seeing — natural gas, diesel, gasoline, propane ? At the price point you describe my guess would be natural gas, which would complicate the issues with REACH ordinances and their infrastructure assumptions. Other transportable/ storable fuels and their gen sets might have issues with scale and emissions. Possibly another dimension for your survey/study. Anyway, thanks for good work. Bill Julian

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