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How Does Welfare from Load Shifting Electricity Policy Vary with Market Prices? Evidence from Bulk Storage and Electricity Generation

We model the electricity market to demonstrate that changes in the price of natural gas can cause the market and non-market impacts of bulk electricity storage to move in opposite directions. We provide evidence consistent with the model using a series of reduced form tests on data from 2005-2010. We then simulate installing bulk electricity storage on the US electric grid. We find that lower natural gas prices generally reduce the market gains and non-market costs of storage. However, direct non-market costs are still positive which means that there is no argument for subsidizing storage to mitigate pollution given the current mix of generating technologies; arguments in favor of bulk storage R&D subsidies ride on public good aspects of technology and dynamic investment incentives for intermittent renewables.

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Energy Specializations: Electricity – Markets and Prices ; Natural Gas – Markets and Prices; Energy Modeling; Electricity - Storage

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q55: Environmental Economics: Technological Innovation, Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources

Keywords: Electricity storage, Natural gas, Air pollution, Energy policy

DOI: 10.5547/01956574.39.6.jhol

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Published in Volume 39, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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