About three weeks ago Japan was severely ravaged by an earthquake. From half the world away, it seemed as if what the earthquake didn’t devastate, the ensuing tsunami did. In addition to the immediate damage, the long term suffering has been made worse by inadequate supplies of electricity, so inadequate that there are reports of rotating blackouts. Some friends whose son lives near Tokyo worry about him being stuck in the subway if a rotating blackout hits the subway.
Economists say that the best way to ration a commodity when there is a shortage is through price. Of course, economists deal with prices, so it is expected that an economist would suggest prices. The economists view on economic rationing reminds me of the concept that if the only tool in your toolbox is a hammer then everything looks like a nail.
But I question whether there should be a shortage. When California was experiencing a shortage of electricity and introduced rotating blackouts, a friend provided me data on backup generators in the Western US. My analysis appeared in “Saving California With Distributed Generation: A Crash Program To Use Small, Standby Diesel Generators To Keep The Lights On,” Public Utilities Fortnightly, 2001 June 15. California’s backup generating capacity was about 80% of its peak load. I suspect that Japan has a comparable amount of backup generation, perhaps more because of Japan’s greater history of earthquakes.
But getting backup generators to operate is problematic. First, they are notoriously inefficient and burn premium fuels. Thus, the fuel cost alone from a backup generator is likely to be 3-10 times the fuel cost of the best central station power plant. But, if you want to avoid blackouts, connecting thousands of backup generators to the grid will help. Further, since the backup generators are distributed around the country, their operation will reduce electrical losses on the grid though not by enough to pay for the higher fuel cost.
India has implemented a pricing plan that could be used for the purpose of paying backup generators. India’s Availability Based Tariff (ABT) has a pricing component for unscheduled interchange (UI). The price for UI changes every 15 minutes, indexed on system frequency. When frequency is low, the price is high. When frequency is high the price is low. UI pricing would be ideal for paying backup generators who are connected to the grid.
The physics of electricity results in a uniform frequency within a grid, uniform across geographic areas at any instant, but changing instant by instant as the balance between supply and demand changes. A shortage will push system frequency down, as system operators are contemplating rotating blackouts. Backup generators operating in parallel with the system will help hold the frequency up, at least if enough backup generators are operating. The data from California suggest that Japan is likely to have enough backup generators. The uncertainty relates to Japan’s willingness to pay these generators enough money to get them to generate.
The dynamic ABT price is for UI. But it can also be used to price retail customers who have been requested to curtail consumption, at least for the amount by which the retail customer has not achieved the requested curtailment. At the same time, the ABT price can be paid to retail customers who have surpassed the curtailment request. This concept will require some improved metering or serendipitous use of distribution station metering and load profiles. Perhaps I will write more on that later.