Balancing marine ecosystem impact and freshwater consumption with water-use fees in California's power markets: An evaluation of possibilities and trade-offs

This study examines the use of water-use fees in California's bidding-based power markets to balance freshwater conservation and reduction of the marine ecosystem impact of coastal once-through-cooled power plants. An hourly power dispatch is simulated using the state's 2014 demand and generation capacity data. Fees on ocean water withdrawals of $5-120/acre-ft are simulated in three scenarios that test the grid's ability to simultaneously mitigate its impact on marine ecosystems, conserve freshwater, and incentivize recycled water use. Although fees modeled represent a small share of generator fuel costs, results show that they trigger declines in ocean water withdrawals of up to 11% that are almost always cost-effective if accounting for effects on system-wide fuel costs and CO2 emissions. An appropriately designed fee-structure reduces ocean water withdrawals by 9% without increasing freshwater consumption elsewhere. Wholesale electricity price increases of 5-10% are concentrated in Northern California, and marine ecosystem benefits are partly offset by increases in NOx and SO2 emissions inland. Overall, this study finds that water-use fees could be an effective strategy for reducing the marine ecosystem impacts of California's power sector, particularly because they can also address short term fluctuations in freshwater scarcity. Keywords: Energy-water nexus, once-through cooling, scarce water, environmental pricing, energy policy, electricity dispatch, power systems.