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California ICAP: Why the West is Different |
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Hydro Energy Fluctuations
The East has hot summers, but the resulting demand fluctuations are small compared with our supply-side hydro-energy fluctuations. The West can have a 100,000 GWh shortfall of energy during a year. That's almost half of California's entire energy use for a year. (An excellent paper on this subject by Roark. )
The difference between East and West is only quantitative, but it is substantial. Because hydro is a cheap but unpredictable resource, it is economically sensible to keep cheap inefficient fossil generators around as insurance against droughts which happen only every five to ten years. Unfortunately, markets consider such investments to be quite risky, and the public views them as price gouging when they charge enough to pay for seven years of idleness in a few weeks of operation.
This makes a Hogan-style administrative price-spike approach even more untenable than it is in the East. It also means that a demand-elasticity approach will be subject to year-long bouts of high prices which may cause political repercussions.
Inter-Market Trade
The West is also different because of its level of inter-market trade. Resource adequacy policies can stimulate the right level of investment within the market covered by the policy, but little is known about stimulating investment outside the market. In the East, the markets import little, and three of them essentially cooperate on investment. California imports 20% of its energy and a considerable amount of capacity (does anyone know how much?). Also, to trade capacity efficiently the market willneed to have a price that fluctuates seasonally. The initial LICAP proposal (ISO-NE) included this, but it is more complicated and will cause some confusion.
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http://stoft.com/p/70.html | 01/06/09 01:21 GMT
Modified: Sat, 08 Mar 2008 05:40:34 GMT
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Look Inside on Amazon
China has nixed caps for 15 years. Kyoto is stuck. Addiction continues. OPEC will soon return.
Environmental & energy-security forces distrust each other.
Carbonomics shows the policies of cooperation, the only path to success.
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