Renewable Electricity.

• Author: Van Doren, Peter
• Position: Working Papers: A SUMMARY OF RECENT PAPERS THAT MAY BE OF INTEREST TO REGULATION'S READERS - Setting with the Sun: The Impacts of Renewable Energy on Wholesale Power Markets - Book review

Renewable Electricity

"Setting with the Sun: The Impacts of Renewable Energy on Wholesale Power Markets," by James Bushnell and Kevin Novan. August 2018. University of California, Berkeley Energy Institute Working Paper #292.

Recent trends in electricity production have altered prices in wholesale markets and thus the economics of traditional generation. Historically, coal and nuclear plants had high capital costs and low marginal costs. They operated continuously and their output could not vary easily to match the daily demand cycle. Smaller plants fueled by natural gas or oil had lower capital costs and higher marginal costs, and their output could vary to follow demand during the day. The smaller plants' higher operating costs were reimbursed by higher wholesale prices during the daytime and those higher prices also contributed revenue for the higher capital costs of nuclear and coal plants.

The addition of subsidized and mandated solar to this generation picture has altered the economics of electricity production. Prices in the California market are now lower during the daytime than they were several years ago. University of California, Berkeley energy economist Catherine Wolfram noted last year that prices in the Southern California market were negative during the midday for 19 days during March and April 2017. As energy economist Jonathan Lesser argued in these pages ("The High Cost of LowValue Wind Power," Spring 2013), those lower prices reduce the returns to traditional baseload coal and nuclear generation.

Wolfram has expanded this idea to natural-gas...