Making resource adequacy a private good: The good, the bad, and the ugly

Abstract:

The existence within a system of sufficient generation capacity to satisfy electricity demand at all times (or within a predetermined target), referred to as “resource adequacy,” has been a source of great attention in the last few decades among regulators, academia, and, more recently, also among the public due to Texas’s severe electricity shortage in 2021. Here, we propose that resource adequacy no longer needs to be administered by regulators. Instead, apart from ensuring resource adequacy for essential loads (such as hospitals), it could be offered to users as a customizable service based on their personal preferences (a common way to quantify them is through the value of loss load [VOLL]). This has the potential for significant impact given that most electricity demand could be considered non-essential. This change in perception can help ensure the correct procurement of capacity, reduce the cost for consumers, and promote the adoption of distributed energy resources by consumers. In addition, it would incentivize non-essential demand reduction, enhance the efficiency of energy allocation and usage, and thereby could contribute to decarbonization under proper policies. However, this change would require a socially acceptable definition of essential demand and raise ethical and practical challenges.