IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-23-10.html
   My bibliography  Save this paper

The Value of Electricity Reliability: Evidence from Battery Adoption

Author

Listed:
  • Brown, David B.
  • Muehlenbachs, Lucija

    (Resources for the Future)

Abstract

To avoid electric-infrastructure-induced wildfires, millions of Californians have had their power cut for hours to days at a time. We show that rooftop solar-plus-battery-storage systems increased in zip codes with the longest power outages. Rooftop solar panels alone will not help a household avert outages, but a solar-plus-battery-storage system will. Using this fact, we obtain a revealed-preference estimate of the willingness to pay for electricity reliability, the Value of Lost Load, a key parameter for electricity market design. Our estimate, of around $4,300/MWh, suggests California's wildfires-prevention outages resulted in losses from foregone consumption of $322 million to residential electricity consumers.

Suggested Citation

  • Brown, David B. & Muehlenbachs, Lucija, 2023. "The Value of Electricity Reliability: Evidence from Battery Adoption," RFF Working Paper Series 23-10, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-23-10
    as

    Download full text from publisher

    File URL: https://www.rff.org/documents/3885/WP_23-10.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Koichiro Ito & Shuang Zhang, 2020. "Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1627-1672.
    3. Linn, Joshua & Shih, Jhih-Shyang, 2019. "Do lower electricity storage costs reduce greenhouse gas emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 130-158.
    4. Pavanini, Nicola & Feger, Fabian & Radulescu, Doina, 2017. "Welfare and Redistribution in Residential Electricity Markets with Solar Power," CEPR Discussion Papers 12517, C.E.P.R. Discussion Papers.
    5. Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    6. Olivier Deschênes & Michael Greenstone & Joseph S. Shapiro, 2017. "Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program," American Economic Review, American Economic Association, vol. 107(10), pages 2958-2989, October.
    7. Ashley Langer & Derek Lemoine, 2022. "Designing Dynamic Subsidies to Spur Adoption of New Technologies," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(6), pages 1197-1234.
    8. Severin Borenstein, 2017. "Private Net Benefits of Residential Solar PV: The Role of Electricity Tariffs, Tax Incentives, and Rebates," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 85-122.
    9. Severin Borenstein & Lucas W. Davis, 2016. "The Distributional Effects of US Clean Energy Tax Credits," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 191-234.
    10. Maureen Cropper & James K. Hammitt & Lisa A. Robinson, 2011. "Valuing Mortality Risk Reductions: Progress and Challenges," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 313-336, October.
    11. Jacquelyn Pless & Arthur A. van Benthem, 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 367-401, October.
    12. Kim, Kayoung & Nam, Heekoo & Cho, Youngsang, 2015. "Estimation of the inconvenience cost of a rolling blackout in the residential sector: The case of South Korea," Energy Policy, Elsevier, vol. 76(C), pages 76-86.
    13. Cohen, Jed J. & Moeltner, Klaus & Reichl, Johannes & Schmidthaler, Michael, 2016. "Linking the value of energy reliability to the acceptance of energy infrastructure: Evidence from the EU," Resource and Energy Economics, Elsevier, vol. 45(C), pages 124-143.
    14. Matthew Neidell, 2009. "Information, Avoidance Behavior, and Health: The Effect of Ozone on Asthma Hospitalizations," Journal of Human Resources, University of Wisconsin Press, vol. 44(2).
    15. Deborah A. Sunter & Sergio Castellanos & Daniel M. Kammen, 2019. "Disparities in rooftop photovoltaics deployment in the United States by race and ethnicity," Nature Sustainability, Nature, vol. 2(1), pages 71-76, January.
    16. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    17. Woo, C.K. & Ho, T. & Shiu, A. & Cheng, Y.S. & Horowitz, I. & Wang, J., 2014. "Residential outage cost estimation: Hong Kong," Energy Policy, Elsevier, vol. 72(C), pages 204-210.
    18. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, American Economic Association, vol. 106(3), pages 587-624, March.
    19. Michael Kremer & Jessica Leino & Edward Miguel & Alix Peterson Zwane, 2011. "Spring Cleaning: Rural Water Impacts, Valuation, and Property Rights Institutions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 145-205.
    20. Ozbafli, Aygul & Jenkins, Glenn P., 2016. "Estimating the willingness to pay for reliable electricity supply: A choice experiment study," Energy Economics, Elsevier, vol. 56(C), pages 443-452.
    21. Michael Beenstock & Ephraim Goldin & Yoel Haitovsky, 1997. "The Cost of Power Outages in the Business and Public Sectors in Israel: Revealed Preference vs. Subjective Valuation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 39-61.
    22. Douglas H. Wrenn & H. Allen Klaiber & Edward C. Jaenicke, 2016. "Unconventional Shale Gas Development, Risk Perceptions, and Averting Behavior: Evidence from Bottled Water Purchases," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 779-817.
    23. Carlsson, Fredrik & Kataria, Mitesh & Lampi, Elina & Martinsson, Peter, 2021. "Past and present outage costs – A follow-up study of households’ willingness to pay to avoid power outages," Resource and Energy Economics, Elsevier, vol. 64(C).
    24. Robert L. Fares & Michael E. Webber, 2017. "The impacts of storing solar energy in the home to reduce reliance on the utility," Nature Energy, Nature, vol. 2(2), pages 1-10, February.
    25. Olivier De Groote & Frank Verboven, 2019. "Subsidies and Time Discounting in New Technology Adoption: Evidence from Solar Photovoltaic Systems," American Economic Review, American Economic Association, vol. 109(6), pages 2137-2172, June.
    26. Shaun McRae, 2015. "Infrastructure Quality and the Subsidy Trap," American Economic Review, American Economic Association, vol. 105(1), pages 35-66, January.
    27. Darghouth, Naïm R. & Barbose, Galen & Wiser, Ryan, 2011. "The impact of rate design and net metering on the bill savings from distributed PV for residential customers in California," Energy Policy, Elsevier, vol. 39(9), pages 5243-5253, September.
    28. Morrissey, Karyn & Plater, Andrew & Dean, Mary, 2018. "The cost of electric power outages in the residential sector: A willingness to pay approach," Applied Energy, Elsevier, vol. 212(C), pages 141-150.
    29. Brown, David P., 2022. "Socioeconomic and demographic disparities in residential battery storage adoption: Evidence from California," Energy Policy, Elsevier, vol. 164(C).
    30. Lamp, Stefan & Samano, Mario, 2022. "Large-scale battery storage, short-term market outcomes, and arbitrage," Energy Economics, Elsevier, vol. 107(C).
    31. Carson, Richard T. & Novan, Kevin, 2013. "The private and social economics of bulk electricity storage," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 404-423.
    32. Murphy, Sinnott & Lavin, Luke & Apt, Jay, 2020. "Resource adequacy implications of temperature-dependent electric generator availability," Applied Energy, Elsevier, vol. 262(C).
    33. Joshua Graff Zivin & Matthew Neidell & Wolfram Schlenker, 2011. "Water Quality Violations and Avoidance Behavior: Evidence from Bottled Water Consumption," American Economic Review, American Economic Association, vol. 101(3), pages 448-453, May.
    34. Sanya Carley & David M. Konisky, 2020. "The justice and equity implications of the clean energy transition," Nature Energy, Nature, vol. 5(8), pages 569-577, August.
    35. William W. Hogan, 2013. "Electricity Scarcity Pricing Through Operating Reserves," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    36. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    37. Abrate, Graziano & Bruno, Clementina & Erbetta, Fabrizio & Fraquelli, Giovanni & Lorite-Espejo, Azahara, 2016. "A choice experiment on the willingness of households to accept power outages," Utilities Policy, Elsevier, vol. 43(PB), pages 151-164.
    38. Eric O’Shaughnessy & Galen Barbose & Ryan Wiser & Sydney Forrester & Naïm Darghouth, 2021. "The impact of policies and business models on income equity in rooftop solar adoption," Nature Energy, Nature, vol. 6(1), pages 84-91, January.
    39. Wolf, André & Wenzel, Lars, 2016. "Regional diversity in the costs of electricity outages: Results for German counties," Utilities Policy, Elsevier, vol. 43(PB), pages 195-205.
    40. R. Andrew Butters & Jackson Dorsey & Gautam Gowrisankaran, 2021. "Soaking Up the Sun: Battery Investment, Renewable Energy, and Market Equilibrium," NBER Working Papers 29133, National Bureau of Economic Research, Inc.
    41. Castro, Rui & Faias, Sérgio & Esteves, Jorge, 2016. "The cost of electricity interruptions in Portugal: Valuing lost load by applying the production-function approach," Utilities Policy, Elsevier, vol. 40(C), pages 48-57.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bakkensen, Laura A. & Ma, Lala & Muehlenbachs, Lucija & Benitez, Lina, 2024. "Cumulative impacts in environmental justice: Insights from economics and policy," Regional Science and Urban Economics, Elsevier, vol. 107(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brown, David P. & Muehlenbachs, Lucija, 2024. "The value of electricity reliability: Evidence from battery adoption," Journal of Public Economics, Elsevier, vol. 239(C).
    2. Jin, Taeyoung & Lee, Tae Eui & Kim, Dowon, 2023. "Value of lost load estimation for the South Korea's manufacturing sector—finding the gap between the supply and demand side," Renewable and Sustainable Energy Reviews, Elsevier, vol. 187(C).
    3. Motz, Alessandra, 2021. "Security of supply and the energy transition: The households' perspective investigated through a discrete choice model with latent classes," Energy Economics, Elsevier, vol. 97(C).
    4. Aweke, Abinet Tilahun & Navrud, Ståle, 2022. "Valuing energy poverty costs: Household welfare loss from electricity blackouts in developing countries," Energy Economics, Elsevier, vol. 109(C).
    5. Thomas, Douglas & Fung, Juan, 2022. "Measuring downstream supply chain losses due to power disturbances," Energy Economics, Elsevier, vol. 114(C).
    6. Jin, Taeyoung & Lee, Tae Eui & Kim, Dowon, 2024. "Valuing flexible resources in the Korean electricity market based on stated preference methods," Utilities Policy, Elsevier, vol. 88(C).
    7. Deutschmann, Joshua W. & Postepska, Agnieszka & Sarr, Leopold, 2021. "Measuring willingness to pay for reliable electricity: Evidence from Senegal," World Development, Elsevier, vol. 138(C).
    8. Paul Nduhuura & Matthias Garschagen & Abdellatif Zerga, 2021. "Impacts of Electricity Outages in Urban Households in Developing Countries: A Case of Accra, Ghana," Energies, MDPI, vol. 14(12), pages 1-26, June.
    9. Fabian Feger & Nicola Pavanini & Doina Radulescu, 2022. "Welfare and Redistribution in Residential Electricity Markets with Solar Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3267-3302.
    10. Bakkensen, Laura A. & Ma, Lala & Muehlenbachs, Lucija & Benitez, Lina, 2024. "Cumulative impacts in environmental justice: Insights from economics and policy," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    11. Majid Hashemi & Glenn Jenkins, 2021. "The Economic Benefits of Mitigating the Risk of Unplanned Power Outages," Working Paper 1468, Economics Department, Queen's University.
    12. Carattini, Stefano & Figge, Béla & Gordan, Alexander & Löschel, Andreas, 2024. "Municipal building codes and the adoption of solar photovoltaics," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    13. Majid Hashemi, 2021. "The Effect of Reliability Improvements on Household Electricity Consumption and Coping Behavior: A Multi-dimensional Approach," Working Paper 1469, Economics Department, Queen's University.
    14. Moritz A. Drupp & Ulrike Kornek & Jasper N. Meya & Lutz Sager, 2021. "Inequality and the Environment: The Economics of a Two-Headed Hydra," CESifo Working Paper Series 9447, CESifo.
    15. Evert Reins, 2021. "Seductive subsidies? An analysis of second-degree moral hazard in the context of photovoltaic solar systems," IRENE Working Papers 21-03, IRENE Institute of Economic Research.
    16. Lamessa Tariku ABDISA, 2018. "Power Outages, its Economic Cost and Firm Performance: Evidence from Ethiopia," Departmental Working Papers 2018-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    17. Brown, David P., 2022. "Socioeconomic and demographic disparities in residential battery storage adoption: Evidence from California," Energy Policy, Elsevier, vol. 164(C).
    18. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    19. Sébastien Houde & Wenjun Wang, 2022. "The Incidence of the U.S.-China Solar Trade War," CER-ETH Economics working paper series 22/372, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    20. Richard S. J. Tol, 2023. "Navigating the energy trilemma during geopolitical and environmental crises," Papers 2301.07671, arXiv.org.

    More about this item

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-23-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Resources for the Future (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.