1. James Bushnell University of California at Davis and NBER
Can power markets survive when they don’t do want politicians want them to?
James Bushnell
University of California at Davis
and NBER

2. The Issues
Many States have differing policy goals and regulatory structures
These policies almost certainly impact regional market prices
Renewable mandates
“Baseload” generation supports
Many combinations of retail choice, vertical integration, and in between.
Low energy prices are posing serious financial challenges for many classes of incumbent generation.
Some of this generation may provide value currently not reflected in market prices (location, flexibility, low carbon – probably not baseloadabilty)
Question is if/how markets reward generation attributes we previously took for granted.

5. The new market drivers
The main culprits are low natural gas prices and new renewable energy
”zero” marginal cost less important than lower MC than previous baseload.
Renewable mandates main influence is timing of new capacity additions.
Ongoing research shows that gas is main driver of low prices in the east
Renewables playing a non-trivial role in California

6. Hourly Utility Scale Solar Output on CAISO System

10. Reliability is not the Issue: Efficiency (cost) is
Institutional structures (ISOs/NERC) have strong powers and incentives to maintain reliability
But at what cost?
Renewable mandates have contributed to the early obselecense of conventional power plant
And are starting to undercut the value of each other now
This is creating a new stranded cost problem that is getting politicized nationally

12. Some observations
Policies in CA are changing the power mix and pricing profile of electricity in the west.
Market actually seem to be working.
Prices are rewarding flexible generation
Blunter policies may not be working
CA looks to add increasing grid scale solar when its value is approaching zero for months at a time.
Policy-makers on the right and the left don’t trust markets
Carbon pricing plus market incentives probably have produced substantial renewable investment.
Coal would be even less economic than it is today.

13. Thank you James Bushnell, UC Davis Comments drawn from:
Bushnell and Novan. “Generation Green: Renewable Electricity Supply in the U.S.”
UC Davis working paper. 2017
Bushnell, Flagg, and Mansur. “Capacity Markets at a Crossroads.”
UC Davis working paper. 2016