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Renewable Electricity Policy and Market Integration

Thomas P. Tangerås

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.ttan
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Abstract:
I analyze renewable electricity policy in a multinational electricity market with transmission investment. If national policy makers choose support schemes to maximize domestic welfare, a trade policy motive arises operating independently of any direct benefit of renewable electricity. The model predicts electricity importing (exporting) countries to choose policies which reduce (increase) electricity prices. A narrow pursuit of domestic objectives distorts transmission investment, and thereby market integration, below the efficient level. Distortions cannot be corrected by imposing national renewable targets alone. Instead, subsidies to transmission investment and a harmonization of and reduction in the number of policy instruments can improve welfare.



Market Design for Long-Distance Trade in Renewable Electricity

Richard Green, Danny Pudjianto, Iain Staffell and Goran Strbac

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.rgre
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Abstract:
While the 2009 EU Renewables Directive allows countries to purchase some of their obligation from another member state, no country has yet done so, preferring to invest locally even where load factors are very low. If countries specialised in renewables most suited to their own endowments and expanded international trade, we estimate that system costs in 2030 could be reduced by 5%, or €15 billion a year, after allowing for the costs of extra transmission capacity, peaking generation and balancing operations needed to maintain electrical feasibility. Significant barriers must be overcome to unlock these savings. Countries that produce more renewable power should be compensated for the extra cost through tradable certificates, while those that buy from abroad will want to know that the power can be imported when needed. Financial Transmission Rights could offer companies investing abroad confidence that the power can be delivered to their consumers. They would hedge short-term fluctuations in prices and operate much more flexibly than the existing system of physical point-to-point rights on inter-connectors. Using FTRs to generate revenue for transmission expansion could produce perverse incentives to under-invest and raise their prices, so revenues from FTRs should instead be offset against payments under the existing ENTSOE compensation scheme for transit flows. FTRs could also facilitate cross-border participation in capacity markets, which are likely to be needed to reduce risks for the extra peaking plants required.



Optimal Electricity Transmission Reliability: Going Beyond the N-1 Criterion

Marten Ovaere and Stef Proost

Year: 2018
Volume: Volume 39
Number: Number 4
DOI: 10.5547/01956574.39.4.mova
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Abstract:
In the presence of transmission outages, uncertain demand and variable renewable supply, network operators keep a reliability margin to avoid interruptions and black-outs. The reliability margin is presently determined by the N-1 reliability criterion. Our analytical model defines the optimal reliability margin by balancing congestion costs and interruption costs. This leads to more efficient use of transmission capacity and to smaller investment needs than with the N-1 criterion. A numerical illustration shows the net benefits of the new reliability criterion.



Grid Investment and Support Schemes for Renewable Electricity Generation

Johannes Wagner

Year: 2019
Volume: Volume 40
Number: Number 2
DOI: 10.5547/01956574.40.2.jwag
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Abstract:
The unbundling of formerly vertically integrated utilities in liberalized electricity markets led to a coordination problem between investments in the regulated electricity grid and investments into new power generation. At the same time investments into new generation capacities based on weather dependent renewable energy sources such as wind and solar energy are increasingly subsidized with different support schemes. Against this backdrop this article analyzes the locational choice of private wind power investors under different support schemes and the implications on grid investments. I find that investors do not choose system optimal locations in feed-in tariff schemes, feed-in premium schemes and subsidy systems with direct capacity payments. Consequently, inefficiencies arise if transmission investment follows wind power investment. A benevolent transmission operator can implement the first-best solution by anticipatory investment behavior, which is however only applicable under perfect regulation. Alternatively a location dependent network charge for wind power producers can directly influence investment decisions and internalize the grid integration costs of wind power generation.





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