Alison Ong

In many economic settings, electricity is treated as a homogenous good. But for economic policy questions concerning decarbonization, electricity may be better thought of as a heterogenous product, which is differentiated by the type of fuel used to generate the power. Many states employ regulatory instruments in the form of renewable portfolio standards (RPS) that require minimum levels of renewable energy content for electricity providers. I explore how offering customers choice in terms of the renewable energy content of their power portfolios might act as an additional mechanism for decarbonizing electricity supply. I examine the case of California, where a significant portion of customers take retail service from portfolios containing renewable energy levels in excess of the state’s RPS. This is driven by the recent entry of Community Choice Aggregators (CCAs), publicly-owned retailers who procure power on behalf of their member cities, and who often tout environmentally- progressive reputations. California’s CCAs sometimes set their default procurement portfolios to have higher renewable content than the state average, and they have the unusual feature of being opt-out rather than opt-in. I find that CCAs with high-renewable default portfolios give rise to a particularly large set of demand for green products, as they capture both customers with high willingness to pay for voluntary green power and customers who are inattentive to the content of their power. Regression analysis demonstrates that this uptake of voluntary green procurement is correlated with community income and political support for environmental initiatives. However, even in a setting with anomalously widespread use of voluntary green portfolios, the resulting effect does not clearly show additionality compared to California’s existing RPS mandate. Though CCAs consistently outperform the RPS (with 12% more renewable energy than the RPS requires in 2021), stagnation or backsliding in other parts of the sector meant that the state average was actually 1% below the soft target of 35.75% in 2021. I also find that the high levels of voluntary greenness exhibited by wealthier or larger CCAs does not translate to less wealthy or smaller CCAs. The introduction and uptake of new “voluntary green” offerings for retail customers is not without promise, but institutional and regulatory factors may mitigate its effectiveness in achieving decarbonization goals.

Integrating renewable energy sources into electricity systems introduces challenges such as intermittent power generation. These challenges are not only confined to energy procurement but also impact grid stability, particularly in terms of frequency regulation. When frequency disturbances occur, an immediate (sub-second) power exchange known as an inertial response helps mitigate the rate of change of frequency. Traditional power generators like coal and natural gas plants provide the necessary inertia to dampen frequency changes, but this feature is absent in renewable sources. As renewables increasingly displace fossil fuels, the lack of sufficient inertia becomes a concern for grid operators and policymakers. This study examines the potential of battery energy storage systems in supplying synthetic inertia, offering a fast-responding power injection to mimic traditional generators’ inertial response.

Customers serviced by California’s investor-owned utilities (IOU) face the highest electricity rates in the continental United States. Since 2019, IOU prices, on average, have increased by 43% when adjusted for inflation. High electricity prices pose significant affordability challenges and may hamper the state’s goal for large-scale electrification and decarbonization. However, not everyone in the state faces high prices: more than 70 power providers in California lead to considerable variation in customers’ electricity rates. While customers in IOU and Community Choice Aggregators (CCA) face steeply rising rates, publicly-owned utility (POU) customers do not. This work describes the structural sources of rate heterogeneity between power providers and contextualizes utility costs, earnings, and returns. We identify major drivers of rate increase in the IOUs and CCAs using historical regulatory, financial, and rate data. Recent IOU price hikes are due to network infrastructure investments in response to wildfires, and CCA reach price parity due to exit charges levied on them. We also find that IOUs’ operations and maintenance expenses on distribution and transmission networks largely remained constant despite an aging infrastructure until wildfire events occurred. Like most electricity utilities in the United States, California IOUs earn a guaranteed return on equity higher than investment-grade bond yield. On the other hand, POUs consistently have cheaper electricity, but most of them service urban and suburban areas with low wildfire risks. We foresee continued price divergence owing to wildfire mitigation costs, which will have varying affordability consequences across the state.

This study quantifies the potential increases in residential natural gas rates associated with building decarbonization approaches under consideration by policy makers in California. We conclude that planned system safety investments and some but not all potential decarbonization policies may pose serious affordability challenges to California consumers over time, exacerbating affordability challenges that already exist for lower income communities and customers. Policy alternatives that affect existing buildings, as opposed to only targeting new construction, result in greater rate increases while also achieving greater emission reductions. Our analysis also suggests that strategically shrinking the size of the natural gas distribution system could be a promising cost- and emissions-mitigation measure that leads to greater emission reductions while moderating rate increases. However, we note that system retirement will require intensive planning and regulatory change in order to execute successfully. Our results highlight the need for a gas transition strategy that involves actively protecting customers from rate increases.