Decarbonizing electricity generation with intermittent sources of energy

Size: px

Start display at page:

Download "Decarbonizing electricity generation with intermittent sources of energy"

Christopher Higgins
5 years ago
Views:

1 Decarbonizing electricity generation with intermittent sources of energy Stefan Ambec and Claude Crampes Toulouse School of Economics November 2017

2 Motivation Increased penetration of intermittent renewables (wind, solar) Retail price of electricity does not vary with wind or sun Tractable model of energy investment and production with pollution, intermittent energy and non-reactive consumers Impact on competitive markets Impact of public policy to support renewables: Carbon tax Feed-in tariff (FIT) Renewable portfolio standard (RPS) Examine technological solutions to intermittency: Energy storage Demand response with smart meters

3 Main messages First-best energy mix with wind power capacity back-up with thermal power

4 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement

5 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement Increased volatility of market prices to recover thermal power capacity cost

6 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement Increased volatility of market prices to recover thermal power capacity cost FIT or RPS should be complemented by another instrument to reduce consumption

7 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement Increased volatility of market prices to recover thermal power capacity cost FIT or RPS should be complemented by another instrument to reduce consumption Energy storage and demand response reduces back-up with thermal power

8 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement Increased volatility of market prices to recover thermal power capacity cost FIT or RPS should be complemented by another instrument to reduce consumption Energy storage and demand response reduces back-up with thermal power Renewable and storage capacities are complement

9 Main messages First-best energy mix with wind power capacity back-up with thermal power Wind power and thermal power equipments can be substitute or complement Increased volatility of market prices to recover thermal power capacity cost FIT or RPS should be complemented by another instrument to reduce consumption Energy storage and demand response reduces back-up with thermal power Renewable and storage capacities are complement Demand response always increases welfare despite price volatility

10 Fossil source f Production q f with marginal cost c Capacities K f with marginal cost r f Capacity constraint q f K f Long term private marginal cost of 1 kwh is c + r f Marginal damage / carbon tax par kwh of fossil fuel δ Long term social marginal cost of 1 kwh is c + r f + δ

11 Intermittent source i Production q i with 0 marginal cost Capacities K i with marginal cost r i [r i, + ) with distribution f and cumulative F and total capacity K Capacity constraint q i K i Available only in state w (not in state w) which occurs with probability ν (probability 1 ν) Long term marginal cost of ν kwh (1 kwh in state w) is r i Long term marginal cost of 1 kwh on average r i ν

12 Consumers Utility or Surplus S(q) concave (S > 0, S < 0) Demand function D(p) = S 1 (p) Retail electricity price p Constant retail price: q = D(p) = q w = q w = K f Back-up constraint: K i + q w f = K f

13 Optimal energy mix Capacities Consumption K f = D(p) = D(c + r f + δ) K f = K i = D(p) K i r i ν c δ 0 δ

14 Markets State w (no wind) State w (wind) Thermal power Thermal and wind power p w Retailers p = νp w + (1 ν)p w Consumers p w

15 Market prices with a carbon tax δ State w (no wind) State w (wind) Thermal power Thermal and wind power p w = c + δ + r f 1 ν p w = c + δ = r i ν Retailers p = νp w + (1 ν)p w = c + δ + r f Consumers

16 Energy storage

17 Energy storage Storage capacity K s at cost r s Energy efficiency of storing technology λ 1 New back-up constraint: K i + q w f K s ν = K f + λk s 1 ν Efficient investment in storage capacity: c + δ + r f 1 ν = 1 ( r s + r ) i λ ν Renewables and storage are complement: r i increases when λ increases and r s decreases q w f = 0 if storage

18 Reactive consumers with smart meters

19 Smart meters with state-dependent prices Share β of reactive consumers paying wholesale prices p w and p w Share 1 β of non-reactive consumers paying retail price p Back-up constraint relaxed with market clearing conditions: K f = βq w r + (1 β)q r K i + q w f = βq w r + (1 β)q r

20 Marginal benefit of making consumers reactive Differentiating expected social welfare with respect to β: [νs(qr w ) + (1 ν)s(qr w ) S(q r )] r }{{} i (qr w q r ) }{{} + +[(1 ν)(c + δ) + r f ] (q r q w r ) }{{} + Always positive: positive share of reactive consumers optimal β > 0

Decarbonizing electricity generation with intermittent sources of energy

Decarbonizing electricity generation with intermittent sources of energy Stefan Ambec and Claude Crampes May 2017 Abstract We examine the impact of public policies and technical solutions that aim to decarbonate