The public implications of private substitutes for electric grid reliability

(Press-News.org) Climate change events have, in recent years, placed increasing strain on public electrical grids in the United States. In response to this vulnerability, some consumers are turning to private alternatives to the electric utility, like generators and batteries. A new paper in the Journal of the Association of Environmental and Resource Economists studies who adopts these private alternatives and how adoption responds to grid failures. The paper also studies how public electric grid reliability may change due to this proliferation and how these changes will affect the wellbeing of all households.

In “Backup Power: Public Implications of Private Substitutes for Electric Grid Reliability,” authors Paul A. Brehm, Sarah Johnston, and Ross Milton establish three facts about the use of private substitutes for grid reliability like batteries and generators. First, major power outages, like those California implemented to reduce the risk of wildfires, cause an increase in battery purchases. Second, high-income households are more likely to turn to these private alternatives, as are rural households. Third, private substitute ownership has increased over time.

The authors next consider how utilities and regulators may react to increased ownership of private substitutes. Fewer households depending on the grid’s own reliability implies that spending on grid reliability has diminished benefits. An efficient regulator weighing the costs and benefits will provide less reliable electricity.

The authors find surprising results about who would benefit and lose from these changes. Households who buy private substitutes still pay for the electric grid. Therefore, if regulators reduce grid reliability in response, all household electricity bills will fall.  While some households who purchase substitutes are made better off, some would be better off if substitutes did not exist. The same is true for households who do not purchase substitutes, some benefit, and some do not. Those who have the lowest willingness to pay for grid reliability, disproportionately lower-income households, benefit from the existence of private substitutes even though they do not buy them. These households value the bill savings more than the lost grid reliability.

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