Earth

Mastering Energy

Through an economic lens, faculty at the Energy Institute at Haas probe the intricacies of energy markets and generate ideas to make them work better

Last year, when an advisor to California Governor Jerry Brown sought to understand a critical aspect of the state’s complex cap-and-trade law that addresses carbon pollution, he reached out to Berkeley Haas energy expert Severin Borenstein at the school’s Energy Institute (EI).

An economist, Borenstein has co-authored a major study of how the market is likely to play out. He has advised the state on many critical energy issues, from electricity deregulation to gasoline prices. Borenstein pointed the Governor’s advisor to relevant posts on the Energy Institute’s blog, which translates research on energy economics for the business and policy communities. The EI blog, which is the most popular at Haas, is closely followed by many in the energy industry: state legislators and regulators, federal agencies, energy companies, environmental organizations, and others who respect the EI’s thorough, unbiased analysis on key issues.

“The Energy Institute is in that excellent nexus of high-quality academic research that is policy relevant,” says Todd Strauss, the senior director of energy policy, planning, and analysis at Pacific Gas and Electric Company (PG&E). He also lauds the work ethic of EI researchers. “There’s a roll-up-your-sleeves attitude they bring to data,” he says.

"The Energy Institute's opinions have outsized influence in the policy world"

—Ralph Cavanagh, energy program co-director, NRDC

Since 1994, the Energy Institute at Haas and its earlier incarnation have grown to become one of the premier research organizations focusing on energy economics. It’s a place where serious academic researchers influence public policy, where the curriculum in energy and cleantech evolves to meet student and marketplace need, and where collaboration—across Berkeley and with other universities—flourishes. With eight faculty members from across campus focused on energy business and policy, no other business school in the country has as much depth, breadth, or influence in the energy field as Berkeley Haas.

Borenstein, the E.T. Grether Chair in Business Administration and Public Policy, established EI’s reputation over 20 years as the Institute’s faculty director—he stepped down last June to focus more on research. He and his EI colleagues have positioned Haas as the go-to source for energy economics research that affects not only California but the entire nation.

Thought Leaders

The Energy Institute’s emphasis has always been on current issues facing business and policy makers. “Everyone here is driven by climate change, poverty, and other aspects of energy’s impact on the world,” says Energy Institute Executive Director Andrew G. Campbell. He joined the Institute last year after working at two energy startups and the California Public Utilities Commission (CPUC), the powerful agency that regulates state utilities, where he advised two commissioners.

This focus on real-world concerns influences lives and the future of energy use around the globe. In the developing world, for example, the Institute is working on a grid connection project in Kenya. In 2013, Haas joined MIT and the University of Chicago in launching The E2e Project to measure and enhance the impact of energy efficiency initiatives. Funding for the joint effort came from the Alfred P. Sloan Foundation. “If you look at all the carbon mitigation scenarios or the recent federal policy on greenhouse gas emissions, they’re relying a lot on energy efficiency,” says Catherine Wolfram, Haas’ Cora Jane Flood Professor of Business Administration, “so we want to understand as much as we can about the savings created by energy efficiency programs.”

Wolfram is also faculty director of the Energy Institute with Associate Professor Lucas Davis. She and Davis were drawn to Haas from faculty positions at Harvard and the University of Michigan, respectively, in large part due to EI’s active engagement in policy and exceptionally high quality and collegial research community. “We’ve purposely tried to create a rich intellectual community here,” says Wolfram. Davis, who arrived at Berkeley in 2009, has since turned down offers from other prestigious schools in favor of the collaborative culture at Haas.

It is this culture of actively seeking constructive dialogue with colleagues and members of the energy industry that helps the Institute thrive. Popular daily brown-bag lunches connect students and faculty—often joined by leaders from solar companies, utilities, oil companies, tech firms, environmental groups, or regulatory agencies—to exchange ideas and help focus research. A weeklong summer “camp” for faculty and student researchers is another genesis of cutting-edge energy scholarship. The Institute’s annual Power Conference, now in its 20th year, presents research that is on the frontiers of energy economics along with real-world feedback from industry executives, regulators, and other industry experts.

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Severin Borenstein (center) stepped down as director of the Energy Institute at Haas (EI) last June after 20 years at the helm to focus more on research. The EI is now led by Berkeley Haas faculty Catherine Wolfram (left) and Lucas Davis (right). EI faculty testify before the state legislature and serve on state and federal committees to provide input on policy.

Forward-thinking, creative research is a hallmark of the Energy Institute. “In the context of residential electricity pricing policy, Energy Institute researchers are several years ahead of the policy makers,” says Jamie Fine, senior economist at the Environmental Defense Fund. He points to Borenstein’s analysis showing the unfairness and inefficiency of utility companies’ increasing-block pricing, where the more energy customers use, the more they pay per unit. “Severin used household billing data to demonstrate what the implications would be for customers with various tariff rates,” Fine says. “No one else was doing that.” Fine used this research to encourage the CPUC to adopt policies on time-variant pricing, where rates reflect the true time-varying cost of electricity. A CPUC decision is forthcoming.

Given its collaborative nature and success partnering with members of the Berkeley community and other institutions, the EI’s influence in the world of research is significant. “When you meet people doing interesting energy economics work, nine times out of ten you’ll find they have a connection to the Energy Institute, either as PhD or MBA students or as visiting researchers at EI,” says Energy Institute Research Associate Maximilian Auffhammer, professor in sustainable development at Berkeley’s Department of Agriculture & Resource Economics. “In terms of energy economics, even people at other schools like MIT and Michigan will acknowledge that no one rivals the work at the Energy Institute.”

Engaging in Policy

January 2015 marked an important milestone in California’s cap-and-trade program with the inclusion of transportation fuels under the cap. The policy was much debated, with opponents branding it a punitive gasoline tax and claiming there would be cataclysmic impacts unless the legislature exempted transportation fuels. “Severin effectively rebutted those claims but also identified potential scenarios in which price spikes could occur and recommended ways to avoid them,” says Ralph Cavanagh, energy program co-director for the Natural Resources Defense Council (NRDC). “His research was the most important I saw in influencing the California legislature not to change course.”

EI faculty often advise state and federal committees on policy or testify before the state legislature, providing the neutral authority lawmakers seek. “The Energy Institute’s opinions have outsized influence in the policy world,” says Cavanagh. “They aren’t afraid to step into controversial questions and be the adults in the room—the calm, dispassionate voice that reminds all of us what’s needed.”

"What happens in California will determine whether other states adopt similar policies or not, so it's incredibly important that we do it right"

—Associate Professor Lucas Davis, Energy Institute at Haas

It’s not uncommon for academics to have influential policy roles in the state. “But what’s rare,” says PG&E’s Strauss, “is the mastery of the details of energy markets” that Energy Institute researchers possess. “We may argue with them at times, but their research is high quality and an important part of the debate.” That research is always focused on data. “There is very little ideology coming out of the Energy Institute,” says Strauss. “Instead, there’s economic methodology.”

The Energy Institute’s analysis extends beyond the borders of California. When the federal Environmental Protection Agency began working on regulations related to the Obama administration’s new Clean Power Plan, Institute researchers filed comments and published an article in Science suggesting how the EPA might navigate potential problems as the plan is implemented.

But California, a national leader in energy policy, remains a critical focus for the Institute. “What happens in California will determine whether other states adopt similar policies or not, so it’s incredibly important that we do it right,” says Davis.

A Beginning in Energy Markets

When Borenstein was tapped in 1994 to become director of what was then called the University of California Energy Institute, he found a position brimming with opportunity. A faculty member at UC Davis at the time, Borenstein had already begun focusing more of his research on oil and gasoline markets. But California was just beginning to consider electricity deregulation, opening up new areas of study. Leading the Energy Institute also offered a chance to build a substantial internal research community.

Borenstein worked with James Bushnell, then a researcher at the Institute and now an associate professor in the Department of Economics at Davis, to launch the annual Power Conference to bring researchers together with California policymakers. Borenstein and Bushnell’s collaboration has included more than a dozen research papers on electricity and gasoline markets; co-organizing numerous conferences; increasing outside funding; and recruiting faculty, PhD students from a number of Berkeley departments, and visitors to grow the UC Energy Institute into a research organization known worldwide. In 2009, when state grant funding and university support for energy business and policy research were shrinking, the Energy Institute formalized its longtime close relationship with Berkeley Haas and became the Energy Institute at Haas.

Borenstein and Bushnell also focused on crafting a curriculum relevant for real-world careers. The centerpiece continues to be the innovative Energy Markets course they developed in 1999. Renamed Energy and Environmental Markets nearly a decade ago, at least a third of the course addresses the environmental challenges faced by energy industries. Course alumni now hold top positions in the energy field, and many return to share their experiences at lunch discussions.

Carla Peterman, who was appointed by Governor Brown in 2012 to be a commissioner at the CPUC, took the class when she was a graduate student researcher at the Institute. As a commissioner, her concerns include affordability and rate design, environmental externalities and their impacts, subsidies and taxes, and market power and competition—all subjects taught in Energy and Environmental Markets. “I go back to the lessons I learned there daily,” she says.

For many years, the course was unique among top MBA programs in its focus on the fundamental economic and finance concepts of the energy business. “In the last few years, other business schools have begun to offer a similar course, many taught by faculty who have been either graduate students or visitors at the Energy Institute,” says Davis.

The course is just one part of a robust, interdisciplinary energy curriculum that has evolved to accommodate student interest and industry demand. An alternative energy speaker series focuses each week on a new topic, such as biofuels, venture capital and financing, and energy storage. A two-part Energy and Infrastructure Project Finance class looks first at legal and risk frameworks and then at economic aspects of project development and finance. Prompted by MBA student demand, this second part is taught by former Recurrent Energy COO Sheldon Kimber, MBA 07.

Student initiatives have also taken off and created additional opportunities for students interested in energy. In 2006, Berkeley MBA students initiated the Berkeley Energy & Resources Collaborative (BERC). Among its many programs, BERC’s network of UC Berkeley students, alumni, faculty, industry professionals, and advisors annually hosts a symposium and a roundtable that showcase new research and offer debate on policy initiatives and energy challenges. BERC’s offerings are so robust they have become part of the extracurricular energy course of study.

Katie Pickrell, MBA 16, applied to Haas because of the variety of energy-related coursework and organizations. Berkeley Haas, she says, “is exceptionally flexible about where you take your classes and open to interdepartmental collaborations, as compared to other business schools.”

One such opportunity for collaboration is Cleantech to Market (C2M), a BERC-initiated program whose quick popularity led it to become a full-fledged Haas course. C2M helps commercialize cleantech projects from researchers campuswide and at Lawrence Berkeley National Laboratory using the expertise of graduate students in business, engineering, public policy, and law. Requests are now coming in from other national labs and top-tier universities and even from abroad. “Our specialty is an innovative process that widens the lens to identify new and promising markets, many of which hadn’t been on the table before,” says Beverly Alexander, co-director, with Brian Steel, of C2M. For example, California-based Point Source Power makes fuel cells that use cook stoves to power personal electronics in developing countries. C2M students helped the company see that it could also profit in developed countries from powering pollution control equipment at natural gas fracking operations.

Among Haas specialties, energy has remained one of the strongest for several years, stimulated, no doubt, by the work of the Energy Institute. In 2010 and 2013, an all-time high of 11 percent of full-time MBA graduates pursued energy-related jobs. Though student interest fluctuates with the business climate, in the last five years, more than twice as many full-time Haas MBAs have pursued energy jobs over other specialty fields. In addition, 6 percent of the two most recent evening and weekend MBA classes work in energy.

Alumni hold influential positions in the energy industry, academia, and government. Of the 16,000+ alumni in the Haas LinkedIn group, some 500 list renewable or conventional energy as their primary industry. Nearly 1,600 work or have worked in energy-related jobs including other sectors such as financial services and consulting.

Energy alumni include Haas Lecturer Sheldon Kimber, MBA 07, who helped to build the solar power company Recurrent that he and his partners sold in 2010 for $300 million. Stephanie Greene, MBA 12, is manager of renewable energy strategy at PG&E. Nick Spicer, MBA 07, is a senior financial analyst at Chevron. And Boaz Ur, MBA 09, co-founded HARBO Technologies to commercialize a product that quickly contains oil spills, an invention that won first place in the energy and cleantech track of LAUNCH, Berkeley Haas’ startup competition, in 2012.

The Energy Institute’s goal is to maintain Haas as the most attractive business school in the country for those interested in energy. “We certainly think that has become the case in the last five-plus years,” says Campbell, “especially in green-energy areas because the Bay Area has exploded as a hotbed for green-energy innovation.”

Staying at the Forefront

With climate change creating new challenges, the economics of energy is more complex and important than ever—and Haas’ energy community is already on it. It’s Borenstein whom faculty and alumni credit for creating that prominence: by attracting the best faculty and students, developing relationships with industry and government, maintaining an emphasis on policy-relevant research, and keeping the culture collaborative.

With the momentum it’s already generated, the Energy Institute at Haas will continue to make Berkeley Haas a hub of energy business and policy. “People can either listen to them now or listen later,” says PG&E’s Strauss. “I try to listen to what they are saying now and what can be done differently.”

—Writing and reporting by Elaine McArdle and Amy Marcott

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