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Products: UHERO Working Papers

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Variable Pricing and the Cost of Renewable Energy

On a levelized-cost basis, solar and wind power generation are now competitive with fossil fuels, and still falling. But supply of these renewable resources is variable and intermittent, unlike traditional power plants. As a result, the cost of using flat retail pricing instead of dynamic, marginal-cost pricing--long advocated by economists--will grow. We evaluate the potential gains from dynamic pricing in high-renewable systems using a novel model of power supply and demand in Hawai'i. The model breaks new ground in integrating investment in generation and storage capacity with chronological operation of the system, including an account of reserves, a demand system with different interhour elasticities for different uses, and substitution between power and other goods and services. The model is open source and fully adaptable to other settings. Consistent with earlier studies, we find that dynamic pricing provides little social benefit in fossil-fuel-dominated power systems, only 2.6 to 4.6 percent of baseline annual expenditure. But dynamic pricing leads to a much greater social benefit of 8.5 to 23.4 percent in a 100 percent renewable power system with otherwise similar assumptions. High renewable systems, including 100 percent renewable, are remarkably affordable. The welfare maximizing (unconstrained) generation portfolio under the utility's projected 2045 technology and pessimistic interhour demand flexibility uses 79 percent renewable energy, without even accounting for pollution externalities. If overall demand for electricity is more elastic than our baseline (0.1), renewable energy is even cheaper and variable pricing can improve welfare by as much as 47 percent of baseline expenditure.

Working Paper

Determinants of Residential Solar Photovoltaic Adoption

Hawaii is a leader in distributed solar photovoltaic (PV) adoption. It has the highest rate of PV-based electricity penetration in the U.S. and rivals global front runners. The policy impetus towards large-scale adoption of renewable energy comes from the Renewable Portfolio Standard, with a target of 40% net electricity sales from renewable sources by the year 2030 and 100% by 2045. Rooftop PV provides the largest share of renewable energy in Hawaii’s electricity generation portfolio. This study analyzes demographic factors related to residential PV system adoption in Hawaii. It provides an econometric analysis, augmented by maps, to better understand the demographic characteristics of households adopting PV systems. Understanding drivers of past uptake is important to gaining insight into future trends, particularly as Hawaii continues towards its 2045 RPS goal.

Working Paper

Residential Battery Systems and the Best Time to Invest A case study of Hawaii

Battery storage is a complementary technology to intermittent renewable energy sources. In particular, it pairs well with solar photovoltaic (PV) systems to capture excess solar generation during daylight hours and to draw energy from it when needed. Technological advancements and rapidly declining costs have made batteries more economically feasible for households, especially in the state of Hawai‘i, which faces the highest cost of electricity in the U.S. With the sunset of net energy metering (NEM) in 2015, and technical limitations from interconnecting additional PV systems capable of exporting energy to the grid, non-exportable PV systems are increasingly a viable option for residential customers in Hawai‘i. This paper analyzes whether the installation of a PV plus battery system is economically compensatory for households on Oahu, with the power grid as a back-up option. Given the importance of state and federal tax incentives in reducing capital costs, this paper compares household savings in the decision to invest now or later, given that the federal tax credit of 30% is set to decline in 2020 and expire by 2022. Installing a PV plus battery system in 2019 could increase net savings by 17-32% in Oahu compared to installing the same system in 2017.

Working Paper

Joint Management of an Interconnected Coastal Aquifer and Invasive Tree

Kiawe (Prosopis pallida), a mesquite tree considered invasive in many parts of the world including Hawai‘i, has been shown to reduce regional groundwater levels via deep taproots. In areas where aquifers are primary sources of fresh water, kiawe control has the potential to be an integral component of water management planning. We develop an analytical dynamic framework for the joint management of kiawe and groundwater, and show that optimal water management depends on expected kiawe damages, while optimal kiawe removal depends on groundwater scarcity and removal cost. Using data from the Kīholo aquifer on the west coast of Hawai‘i Island, we solve for joint management decisions with corresponding parameters related to kiawe damage and water scarcity. With 1.5% water demand growth, Kiawe should be removed if the removal cost is below $1,884/ha. Our numerical results indicate that kiawe damage is nonlinear in the rate of water demand growth. The damage costs can be attributed to three main factors. When demand growth is low, kiawe damage is driven by a higher water extraction cost. For moderate growth, the effect is compounded by anticipated future scarcity. Damage is amplified by a backstop cost effect when the growth rate is high.

Working Paper

Effect of Electric Vehicles on Design, Operation and Cost of a 100% Renewable Power System

This report outlines the effect that electric vehicles could have on the cost of transport and electricity production in the context of a 100% renewable power system (RPS). Results presented here were produced using the SWITCH power system planning model, configured to choose a least-cost plan to achieve 100% renewable power on Oahu by 2045, subject to a 5% limit on biofuel usage.

Working Paper

Electric Utility Regulation Under Enhanced Renewable Energy Integration and Distributed Generation

The economic environment for electric utilities is changing in the United States given increased penetration of distributed generation and limited rooms for sales growth. This paper reviews the recent development of relevant policies in the United States and their economic impacts. This review indicates both challenges and opportunities in improving the policies to enhance distributed generation, and in finding the directions in which electric utility regulation should be reformed.


Health and Health Inequality during the Great Recession: Evidence from the PSID

We estimate the impact of the Great Recession of 2007-2009 on health outcomes in the United States. We show that a one percentage point increase in the unemployment rate resulted in a 7.8-8.8 percent increase in reports of poor health. In addition, mental health was adversely impacted. These effects were concentrated among those with strong labor force attachments. Whites, the less educated, and women were the most impacted demographic groups.

Revised: Posted October 4, 2017


Do Natural Disasters Make Sustainable Growth Impossible?

We consider the prospects for sustainable growth using expected utility models of optimal investment under threat from a natural disaster. Extension of a discrete, two-period model, to continuous time over an infinite time horizon permits the analysis of sustainability under uncertainty regarding adverse events, including both one-time and recurrent disasters. Natural disasters, with destruction of productive capital, disrupt the optimal consumption and utility paths, but the Arrow et al. (2004) sustainability criterion is still satisfied even without adding strong or weak sustainability constraints. We also consider a separate natural resource sector and show that, except for extreme cases, the optimal steady state level of the renewable resource is not affected by the possibility of natural disasters. In the case of catastrophic events, however, damage to the resource system may be severe enough to push the system below a critical value tipping point, undermining the prospects of long-run sustainability.


Global Value Chains and Changing Trade Elasticities

The trade collapse of 2008-2009 and the anemic trade growth since then raise the question of whether trade elasticities may be undergoing fundamental structural change. A potential source of such change is the spread of global value chains (GVCs), which have brought a marked increase in the use of intermediate goods and changes in the nature of trade competition. We review the recent literature on the impact of GVCs on measured trade elasticities and the ways in which their emergence may affect how we estimate and interpret trade responsiveness. We then draw out a few implications of recent research for global modeling.


Estimating the Opportunity for Load-Shifting in Hawaii: An Analysis of Proposed Residential Time-of-Use Rates

Hawaii’s largest electric utility, Hawaiian Electric Company (HECO) and its subsidiaries recently proposed a Time of Use (TOU) pricing scheme for residential rates. The TOU scheme has three tiers of prices: daytime, on-peak, and nighttime. The proposed rates have the highest cost during the on-peak period from 5pm to 10pm. For Oahu, the lowest cost is at nighttime, from 10pm to 9am. The difference between high and low rates is $0.33/kWh. For Maui and Hawaii Island, the lowest cost is during the daytime, 9am to 5pm. The difference between high and low rates are $0.35/kWh and $0.50/kWh, respectively. It is not stated whether the rates will be implemented as an opt-in, opt-out or mandatory program. This report summarizes literature on time varying pricing for residential rates to inform Hawaii’s electricity stakeholders, including ratepayers and policy-makers, of the potential impacts and considerations regarding the potential for TOU pricing in Hawaii.

Working Paper

Electric Vehicle Greenhouse Gas Emission Assessment for Hawaii

This study estimates greenhouse gas (GHG) emissions of electric vehicles (EVs) compared to that of other popular and similar cars in Hawaii, by county over an assumption of 150,000 miles driven. The GHG benefits of EVs depend critically on the electricity system from which they derive their power. The analysis shows that EVs statewide are an improvement in GHG emissions over similar and popular internal combustion engine vehicles (ICEVs). Due to Oahu’s relatively high dependence on fossil fuels, including coal-burning, however, hybrid electric vehicles (HEVs) offer an improvement over EVs. Notably, Oahu also has the most EVs on the road. Hawaii Island, where there are few EVs on the road, shows a clear GHG benefit from EVs because of its high penetration of low carbon sources for electricity. This difference in benefits suggests that policies supporting EV uptake should consider impacts per island, based on available types of electricity generation. For example, because EVs on Hawaii Island provide near to mid-term GHG benefits, there should be assessment of provision of fast-charging stations to overcome potential range anxiety. Until Oahu substantially transitions towards greater penetration of renewable sources for electricity, it may be too early to tout EVs on Oahu as a GHG emissions reduction strategy. This of course depends on the type of vehicle from which drivers switch to EVs. If EV drivers largely pull from potential HEV consumers, as is suggested in prior studies, then there is no gain in GHG emissions reduction. On the other hand, if EV consumers switch from ICEVs, there are GHG emissions savings. Oahu’s electricity generation mix must become similar to that in carbon intensity of Kauai and Maui to make high performing EVs at least comparable to high performing HEVs in GHG emissions.

Read the full report at the Electric Vehicle Transportation Center.

Identifying Peer Effects Using Gold Rushers

Fishers pay attention to where other fishers are fishing, suggesting the potential for peer effects. But peer effects are difficult to identify without an exogenous shifter of peer group membership. We propose an identification strategy that exploits a shifter of peer group membership: gold rushes of new entrants. Following an exchange-rate-induced gold rush in an American fishery, we find that new entrants are strongly influenced by the location choices of their peers. Over-identification tests suggest that the assumptions underlying identification hold when new entrants are inexperienced but identification is lost as new entrants start to potentially influence their peers.


By the Time I Get to Arizona: Estimating the Impact of the Legal Arizona Workers Act on Migrant Outflows

In 2007, the State of Arizona passed the Legal Arizona Workers Act (LAWA) which required all employers to verify the legal status of all prospective employees. Replicating existing results from the literature, we show that LAWA displaced about 40,000 Mexican-born people from Arizona. About 25% of these displaced persons relocated to New Mexico indicating that LAWA had externalities on adjoining states.


How Hawaii’s State Government Shares Transient Accommodation Tax Revenues With Its Local Governments

Many states in the U.S. give unrestricted financial support to their local governments. The reasons some state governments provide aid and others do not, and why a particular mode of revenue sharing is adopted remain unclear. This paper examines Hawaii’s recent effort at developing a model to allocate the state’s transient accommodation tax revenues between the State and the county governments. The paper documents the process and explains the rationale behind the model.


Filipino 2040: Environmental Resources, Shocks, and National Well-Being

The contribution of the environmental-resource sector to national well-being is the sum of natural resource depletion and environmental degradation. Inasmuch as existing resource stocks are below efficient levels, better enforcement of existing laws as well as policies that incentivize sustainable use are needed. Similarly, progressive royalty assessment of mineral resources can incentivize exploration without transferring the bulk of resource rents to private interests. In the case of pollution, the key is to face firms with the full costs of their production, e.g. through emission taxes and/or cap and trade systems. Calculating total depletion and degradation (TDD) will facilitate the calculation of green national income (GNI), a more inclusive metric of national well-being. In the same way, simultaneous optimization of disaster management policies in the face of climate change can facilitate a further improvement in national well-being, this time measured as comprehensive national income (CNI).


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