Restructuring and Renewable Energy Developments in California: Using Elfin to Simulate the Future California Power Market

The California Public Utilities Commission's (CPUC) historic decision of December 20, 1995 signaled the beginning of a new era for the state's electric utility industry. Prompted by some of the highest electricity rates in the nation, the Commission's decision started the phase out of the regulated world of protected utility customer bases and guaranteed returns on investment and replaced it with plans for a competitive environment in which electricity generators will market their product to intermediaries as well as directly to end-use customers. In this study, we attempt to model the California power sector in the next century in order to assess the potential impact of restructuring on renewably generated electricity. Specifically, we use the Elfin production costing and capacity expansion planning model to address three broad research questions:

1. Are new renewable resources likely to be viable in California's competitive electric industry of the next century?
2. What policies could foster the growth of renewable resources?
3. What are the costs and benefits associated with these policies?

These questions are important not just in California, but across the country and internationally as many other states, regions, and countries have begun to restructure their electricity industry. In assessing the impact of restructuring on renewables, we focus on several new policies designed to support renewables in a market environment. While competition may favor renewable resources that produce during peak periods (e.g., solar), competitive power markets are likely to be detrimental to renewable resources in as much as the benefits associated with renewables (fewer emissions, resource diversity, reduced fuel price risk exposure) will no longer be considered in a regulated resource planning system. With restructuring, existing renewables support mechanisms—including regulatory proceedings and a variety of state and federal policies—will be modified and in some cases eliminated. New policies already under consideration to support renewables include: minimum renewables purchase requirements (MRPR), also called renewable portfolio standards (RPS), and surcharge-funded renewables programs. Carbon tax policies, if enacted, would also have a major impact on the viability of renewable generation. We attempted to model variants of all three of these policy options in this work. Provisions to support green marketing have also been debated and facilitated, but are not modeled or assumed in this study.