Making the Best of the Second-Best: Welfare Consequences of Time-Varying Electricity Prices
(Job Market Paper)
Short-run capacity constraints can have large efficiency consequences in markets where prices cannot adjust. In electricity markets, the price paid by retail customers does not vary over time to reflect the high system costs at peak demand hours. The mismatch between prices and costs requires the construction of additional generation capacity compared to the first-best, capacity reflective price. In this paper, I investigate a second-best policy named “peak pricing” designed to address this distortion, and compare its effectiveness to the first-best alternative. Using a quasi-experimental research design, I test if small commercial and industrial establishments respond to a temporary increase in retail prices during the hottest days of the summer. I find that establishments reduce their peak usage by 13.4%. This translates to an aggregate reduction in peak usage of 131 MW and a welfare benefit of $173 million, with most of the gains coming from reduced expenditure on power plant construction. I find the current policy provides 43% of the first-best benefits. I show that by better targeting the generation capacity constraint, a modified peak pricing program could achieve 80% of the welfare gains of the first-best pricing policy.
Energy efficiency savings in low-income households: Evidence from the California Energy Savings Assistance Program (Work in progress)
Energy efficiency policies are increasingly used to both save on energy bills and as a carbon mitigation strategy. Mandatory energy efficiency standards are an important part of this strategy, and have significantly increased appliance efficiency over the last 40 years. This paper examines the California Energy Savings Assistance program, which provides no-cost upgrades to low-income households across the state. Much of this program involves replacing older lighting and appliances with new, energy-efficient models. I use quasi-experimental variation in program uptake to measure energy savings for retrofitted San Diego Gas & Electric customers between 2007 and 2012, finding the program provides little savings. I examine the impact of minimum efficiency standards for the households that received a replacement refrigerator, finding large energy savings when moving from an old standards regime to a new one. Using variation in refrigerator replacement rules, I find evidence of a decreasing benefit from each successive wave of standards, highlighting the potentially limited effectiveness of future minimum appliance standards.