Comparing welfare effects of different regulation schemes: An application to the electricity distribution industry

We compare the welfare effects of different regulation schemes of electricity distribution utilities. The compared regulation schemes are Fixed Price regulation, Cost of Service regulation, Menu of Cost-Contingent Contracts and Simple Menu of Contracts. In our calculations we utilize the information of a firm’s potential to improve cost efficiency. The firm-specific cost information of Finnish electricity distribution utilities is obtained by using various Stochastic Frontier models. Our basic result is that welfare can be improved by changing the Cost of Service regulation scheme to the Menu of Contracts regulation. Welfare also increases in the case of Fixed Price regulation and Simple Menu of Contract regulation. There is however, a significant difference among regulation regimes on how this improved welfare is distributed to consumers and producers.     

Large-scale wind power in European electricity markets: Time for revisiting support schemes and market designs?

This paper questions whether current renewable support schemes and electricity market designs are well-suited to host a significant amount of wind energy. Our analysis aims at finding the right equilibrium between market signals received by wind generators and their intrinsic risks. More market signals are needed to give the right incentives for reducing wind integration costs but should not undermine the effectiveness of support schemes. Although several alternatives combining support schemes and market signals could improve the current situation in terms of market signals and risks, feed-in premium support scheme seems actually to be the more balanced option. Furthermore, an adequate sharing of wind generation technical responsibility between the system operator and wind power producers can help to control wind integration costs even in the absence of accurate market signals.     

Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain

It is sometimes argued that renewables are “expensive”. However, although it is generally true that the private costs of renewable electricity generation are certainly above those of conventional electricity, that statement fails to consider the social benefits provided by electricity from renewable energy sources (RES-E), including environmental and socioeconomic ones. This paper empirically analyses an additional albeit usually neglected benefit: the reduction in the wholesale price of electricity as a result of more RES-E generation being fed into the grid. The case of wind generation in Spain shows that this reduction is greater than the increase in the costs for the consumers arising from the RES-E support scheme (the feed-in tariffs), which are charged to the final consumer. Therefore, a net reduction in the retail electricity price results, which is positive from a consumer point of view. This provides an additional argument for RES-E support and contradicts one of the usual arguments against RES-E deployment: the excessive burden on the consumer.     

The economics of tidal energy

Concern over global climate change has led policy makers to accept the importance of reducing greenhouse gas emissions. This in turn has led to a large growth in clean renewable generation for electricity production. Much emphasis has been on wind generation as it is among the most advanced forms of renewable generation, however, its variable and relatively unpredictable nature result in increased challenges for electricity system operators. Tidal generation on the other hand is almost perfectly forecastable and as such may be a viable alternative to wind generation. This paper calculates the break-even capital cost for tidal generation on a real electricity system. An electricity market model is used to determine the impact of tidal generation on the operating schedules of the conventional units on the system and on the resulting cycling costs, emissions and fuel savings. It is found that for tidal generation to produce positive net benefits for the case study, the capital costs would have to be less than €510,000 per MW installed which is currently an unrealistically low capital cost. Thus, it is concluded that tidal generation is not a viable option for the case system at the present time.     

Distributed generation investment by a microgrid under uncertainty

This paper examines a California-based microgrid's decision to invest in a distributed generation (DG) unit fuelled by natural gas. While the long-term natural gas generation cost is stochastic, we initially assume that the microgrid may purchase electricity at a fixed retail rate from its utility. Using the real options approach, we find a natural gas generation cost threshold that triggers DG investment. Furthermore, the consideration of operational flexibility by the microgrid increases DG investment, while the option to disconnect from the utility is not attractive. By allowing the electricity price to be stochastic, we next determine an investment threshold boundary and find that high electricity price volatility relative to that of natural gas generation cost delays investment while simultaneously increasing the value of the investment. We conclude by using this result to find the implicit option value of the DG unit when two sources of uncertainty exist.     

Incorporating life cycle external cost in optimization of the electricity generation mix

The present work aims to examine the strategic decision of future electricity generation mix considering, together with all other factors, the effect of the external cost associated with the available power generation technology options, not only during their operation but also during their whole life cycle. The analysis has been performed by integrating the Life Cycle Assessment concept into a linear programming model for the yearly decisions on which option should be used to minimize the electricity generation cost. The model has been applied for the case of Greece for the years 2012–2050 and has led to several interesting results. Firstly, most of the new generating capacity should be renewable (mostly biomass and wind), while natural gas is usually the only conventional fuel technology chosen. If externalities are considered, wind energy increases its share and hydro-power replaces significant amounts of biomass-generated energy. Furthermore, a sensitivity analysis has been performed. One of the most important findings is that natural gas increases its contribution when externalities are increased. Summing-up, external cost has been found to be a significant percentage of the total electricity generation cost for some energy sources, therefore significantly changing the ranking order of cost-competitiveness for the energy sources examined.     

Estimating the electricity prices,generation costs and CO2 emissions of large scale wind energy exports from Ireland to Great Britain

The share of wind generation in the Irish and British electricity markets is set to increase by 2020 due to renewable energy (RE) targets. The United Kingdom (UK) and Ireland have set ambitious targets which require 30% and 40% of electricity demand to come from RE, mainly wind, by 2020, respectively. Ireland has sufficient indigenous onshore wind energy resources to exceed the RE target, while the UK faces uncertainty in achieving its target. A possible solution for the UK is to import RE directly from large scale onshore and offshore wind energy projects in Ireland; this possibility has recently been explored by both governments but is currently on hold. Thus, the aim of this paper is to estimate the effects of large scale wind energy in the Irish and British electricity markets in terms of wholesale system marginal prices, total generation costs and CO₂ emissions. The results indicate when the large scale Irish-based wind energy projects are connected directly to the UK there is a decrease of 0.6% and 2% in the Irish and British wholesale system marginal prices under the UK National Grid slow progression scenario, respectively.     

A computational tool for evaluating the economics of solar and wind microgeneration of electricity

This paper presents a method, implemented as a freely available computer programme, which is used to estimate the economics of renewable microgeneration of electricity from wind and solar energy sources. A variety of commercial small wind turbines and photovoltaic (PV) panels are considered and combined with raw energy data gathered from a variety of locations. Both residential and holiday home user profiles are available and options are selectable concerning feed-in tariffs (if available), government incentive schemes and the cost of capital borrowing. The configuration of the generation setup, which can consist of wind, PV and combination of wind/PV, is fully selectable by the user, with a range of appropriate default data provided. A numerical example, based on Irish data, is presented, which suggests that payback periods for solar and wind microgeneration systems can vary greatly (2.5–500 years), depending on the location, installation and economic variables.     

Wind power and CO2 emissions in the Irish market

This paper presents an empirical analysis of the displacement of CO₂ emissions associated with wind generation in the Irish electricity market between December 2013 and May 2017. We find that the average marginal effect of an additional MWh of wind generation corresponds to a reduction in CO₂ emissions of 0.401 tonnes in Ireland (All-Island system) and 0.459 tonnes when accounting also for the emissions offset in Great Britain. We also find that, for each given demand level, the amount of emissions displaced by wind varies with the wind level. In particular, overall the amount of total (domestic plus external) CO₂ emissions offset by a MWh of wind generation increases as the wind generation level increases, a result which suggests that as wind generation capacity increases the effectiveness of wind in displacing CO₂ may be retained. However, when accounting exclusively for the effects of wind generation on domestic emissions, we observe that the effectiveness of wind in displacing emissions may decrease as the amount of wind generation increases further. As the effects of CO₂ as a GHG are independent of the location where it is emitted, our work also highlights that accounting for reductions in emissions due to a reduction of imports from, or an increase in exports to, interconnected markets is crucial in this type of analysis due to the potential for underestimating the effects of wind on emissions savings when only national emissions are accounted for. The Irish government has a target for 40% of total electricity generation to be produced by renewable energy sources by 2020 which, according to institutional reports, may entail an additional 25% to 35% increase in wind generation capacity from the present levels. Accordingly, our findings are particularly relevant for policy making since they do not support one of the arguments against further investment in wind, namely that the corresponding environmental benefits in the form of emissions savings are reduced.     

Electricity market design for facilitating the integration of wind energy: Experience and prospects with the Australian National Electricity Market

Australia has been an early and enthusiastic adopter of both electricity industry restructuring and market-based environmental regulation. The Australian National Electricity Market (NEM) was established in 1999 and Australia also implemented one of the world's first renewable energy target schemes in 2001. With significant recent growth in wind generation, Australia provides an interesting case for assessing different approaches to facilitating wind integration into the electricity industry. Wind project developers in Australia must assess both potential energy market and Tradeable Green Certificate income streams when making investments. Wind-farm energy income depends on the match of its uncertain time varying output with the regional half hourly market price; a price that exhibits daily, weekly and seasonal patterns and considerable uncertainty. Such price signals assist in driving investments that maximize project value to the electricity industry as a whole, including integration costs and benefits for other participants. Recent NEM rule changes will formally integrate wind generation in the market's scheduling processes while a centralized wind forecasting system has also been introduced. This paper outlines experience to date with wind integration in the NEM, describes the evolution of market rules in response and assesses their possible implications for facilitating high future wind penetrations.     

The impact of the North Atlantic Oscillation on electricity markets: A case study on Ireland

The North Atlantic Oscillation (NAO) is a large-scale atmospheric circulation pattern driving climate variability in north-western Europe. As the deployment of wind-powered generation expands on electricity networks across Europe, the impacts of the NAO on the electricity system will be amplified. This study assesses the impact of the NAO, via wind-power generation, on the electricity market considering thermal generation costs, wholesale electricity prices and wind generation subsidies. A Monte Carlo approach is used to model NAO phases and generate hourly wind speed time-series data, electricity demand and fuel input data. A least-cost unit commitment and economic dispatch model is used to simulate an island electricity system, modelled on the all-island Irish electricity system. The impact of the NAO obviously depends on the level of wind capacity within an electricity system. Our results indicate that on average a switch from negative to positive NAO phase can reduce thermal generation costs by up to 8%, reduce wholesale electricity prices by as much as €1.5/MWh, and increase wind power generators' revenue by 12%.     

Economic modelling of price support mechanisms for renewable energy: Case study on Ireland

The Irish Government is considering its future targets, policy and programmes for renewable energy for the period beyond 2005. This follows a review in 2003 of policy options that identified a number of different measures to stimulate increased deployment of renewable energy generation capacity. This paper expands this review with an economic analysis of renewable energy price support mechanisms in the Irish electricity generation sector. The focus is on three primary price support mechanisms quota obligations, feed in tariffs and competitive tender schemes. The Green-X computer model is utilised to characterise the RES-E potential and costs in Ireland up until, and including, 2020. The results from this dynamic software tool are used to compare the different support mechanisms in terms of total costs to society and the average premium costs relative to the market price for electricity. The results indicate that in achieving a 20% RES-E proportion of gross electricity consumption by 2020, a tender scheme provides the least costs to society over the period 2006–2020 but only in case there is limited or no strategic bidding. Considering, however, strategic bidding, a feed-in tariff can be the more efficient solution. Between the other two support mechanisms, the total costs to society are highest for feed-in-tariffs (FIT) until 2013, at which point the costs for the quota system begin to rise rapidly and overtake FIT in 2014–2020. The paper also provides a sensitivity analysis of the support mechanism calculations by varying default parameters such as the interim (2010) target, the assumed investment risk levels and the amount of biomass co-firing. This analysis shows that a 2010 target of 15% rather than 13.2% generates lower costs for society over the whole period 2006–2020, but higher costs for the RES-E strategy over the period 2006–2010.     

Heating with wind: Economics of heat pumps and variable renewables

With the growth of wind and solar energy in electricity supply, the electrification of space and water heating is becoming a promising decarbonization option. In turn, such electrification may help the power system integration of variable renewables, for two reasons: thermal storage could provide low-cost flexibility, and heat demand is seasonally correlated with wind power. However, temporal fluctuations in heat demand may also imply new challenges for the power system. This study assesses the economic characteristics of electric heat pumps and wind energy and studies their interaction on wholesale electricity markets. Using a numerical electricity market model, we estimate the economic value of wind energy and the economic cost of powering heat pumps. We find that, just as expanding wind energy depresses its €/MWh_el value, adopting heat pumps increases their €/MWh_el cost. This rise can be mitigated by synergistic effects with wind power, “system-friendly” heat pump technology, and thermal storage. Furthermore, heat pumps raise the wind market value, but this effect vanishes if accounting for the additional wind energy needed to serve the heat pump load. Thermal storage facilitates the system integration of wind power but competes with other flexibility options. For an efficient adoption of heat pumps and thermal storage, we argue that retail tariffs for heat pump customers should reflect their underlying economic cost.     

Economical evaluation of electricity generation considering externalities

The economics of renewable energy are the largest barrier to renewable penetration. Nevertheless, the strong desire to reduce environmental emissions is considered a great support for renewable energy sources. In this paper, a full analysis for the cost of the kWh of electricity generated from different systems actually used in Egypt is presented. Also renewable energy systems are proposed and their costs are analyzed. The analysis considers the external cost of emissions from different generating systems. A proposed large scale PV plant of 3.3 MW, and a wind farm 11.25 MW grid connected at different sites are investigated. A life cycle cost analysis for each system was performed using the present value criterion. The comparison results showed that wind energy generation has the lowest cost, followed by a combined cycle–natural gas fired system. A photovoltaic system still uses comparatively expensive technology for electricity generation; even when external costs are considered the capital cost of photovoltaic needs to be reduced by about 60% in order to be economically competitive.     

Welfare evaluation of subsidies to renewable energy in general equilibrium: Theory and application

While support schemes to renewable energy are ubiquitous around the world today, there are few systematic welfare evaluations of their social benefits and costs in an economy-wide setting. We develop a general equilibrium cost–benefit rule to assess changes in quantity based subsidy schemes, “green” certificates, that support renewable electricity generation. An advantage to large-scale numerical models of the same issue is that we can go “into the black box” and uncover key economic mechanisms. We study a second-best economy with distorting taxes and pollution, so that a perturbation of the certificate scheme causes both benefits and costs; these items can be uncovered and estimated using our framework. To this end, we provide a user-friendly approximation for empirical implementation, which means that data requirement is modest relative to a typical computable general equilibrium model. We apply the theory to a currently existing scheme in Sweden taking into account “trickle-down” effects, including e.g. a loss of value-added tax income in the rest of the economy and environmental costs (i.e. externalities from electricity generation not currently internalized). We first present an ex post estimate, i.e. the welfare consequences of having scrapped the existing system 2003–2017 and then an ex ante analysis of extending the system to 2045. The latter includes a systematic sensitivity analysis based on Monte-Carlo simulation. Overall, we find net present value gains from removing the subsidy scheme, taking into account externalities, “trickle-down” and public finance repercussions.     

Optimization of hybrid solar energy sources/wind turbine systems integrated to utility grids as microgrid (MG) under pool/bilateral/hybrid electricity market using PSO

This study presents an optimized design of microgrid (MG) in distribution systems with multiple distributed generation (DG) units under different market policies such as pool/hybrid electricity market.Proposed microgrid includes various energy sources such as photovoltaic array and wind turbine with energy storage devices such as battery bank.In this study, microgrid is considered as independent power producer company (IPP) in power system. Price of selling/buying power in on-peak or off-peak for MG, DG and upstream power system (DISCO) under pool/bilateral/hybrid electricity market are different. In this study, particle swarm optimization (PSO) algorithm has been implemented for the optimization of the microgrid cost. The costs include capital cost, replacement cost, operation and maintenance costs and production cost for microgrid and DGs. Then, an objective function to maximize total net present worth (NPW) is presented. PSO approach is employed to obtain the minimum cost of microgrid, during interconnected operation by optimizing the production of local DGs and power exchanges with the main distribution grid. The optimization algorithm is applied to a typical LV network operating under different market policies.     

Retail price effects of feed-in tariff regulation

The feed-in tariff regulation is the widest spread instrument used to promote electricity generation from renewable energy sources in the EU, with the costs of resources devoted to this promotion usually being borne by final consumers. Two components of the electricity retail price are expected to be influenced by the feed-in tariff regulation: the incentive to those firms producing electricity from renewable energy sources and the wholesale price of electricity. In this study we analyze the effects that the feed-in tariff regulation has on the electricity retail price for industrial consumers. We estimate the relative intensity of the impact of the cost of support electricity generation under the feed-in tariff and the electricity wholesale price on the Spanish industrial retail price. Special attention is devoted to technology-specific considerations, as well as short and long run effects. The results show that there is not a strong link between the retail and wholesale market for Spanish industrial consumers. Moreover, the results indicate that an increase of solar generation leads to a higher increase in the industrial retail price than in the case of a proportional increase of wind generation. This suggests that, when evaluating the feed-in tariff regulation impact on the retail price, the cost of incentives effect prevails over the wholesale price effect, and this is stronger for solar than for wind generation.     

Where the wind blows: Assessing the effect of fixed and premium based feed-in tariffs on the spatial diversification of wind turbines

Feed-in tariffs (FIT) are among the most important policy instruments to promote renewable electricity production. The fixed-price FIT (FFIT), which guarantee a fixed price for every unit of produced electricity and the premium based FIT (PFIT), which pay a premium on top of the market price are commonly implemented in the EU. Costs for balancing intermittent electricity production may be significantly higher with FFIT than with PFIT, and FFIT do not provide any incentive to produce electricity when marginal production costs are high. In contrast, PFIT do provide strong incentives to better match renewable power output with marginal production costs in the system. The purpose of this article is to assess the effects of the two tariff schemes on the choice of wind turbine locations. In an analytical model, we show that both the covariance between wind power supply and demand as well as between the different wind power locations matter for investors in a PFIT scheme. High covariance with other intermittent producers causes a decrease in market prices and consequently in revenues for wind power investors. They are therefore incentivized to diversify the locations of wind turbines to decrease the covariance between different wind power production locations. In an empirical optimization model, we analyze the effects of these two different schemes in a policy experiment for Austria. The numerical results show that under a PFIT scheme, (1) spatial diversification is incentivized, (2) the covariance of wind power production with marginal electricity production costs increases, and (3) the variances of the wind power output and of residual load decrease if wind power deployment attains 10% of total national electricity consumption.     

Sustainable electricity generation fuel mix analysis using an integration of multicriteria decision-making and system dynamic approach

To achieve a national energy access target of 90% urban and 51% rural by 2035, combat climate change, and diversify the energy sector in the country, the Zambian government is planning to integrate other renewable energy resources (RESs) such as wind, solar, biomass, and geothermal into the existing hydro generation–based power system. However, to achieve such targets, it is essential for the government to identify suitable combination of the RESs (electricity generation fuel mix) that can provide the greatest sustainability benefit to the country. In this paper, a multicriteria decision-making framework based on analytic hierarchy process and system dynamics techniques is proposed to evaluate and identify the best electricity generation fuel mix for Zambia. The renewable energy generation technologies considered include wind, solar photovoltaic, biomass, and hydropower. The criteria used are categorized as technical, economic, environmental, social, and political. The proposed approach was applied to rank the electricity generation fuel mix based on nine sustainability aspects: land use, CO₂ emissions, job creation, policy promotion affordability, subsidy cost, air pollution reduction, RES electricity production, RES cumulative capacity, and RES initial capital cost. The results indicate that based on availability of RESs and sustainability aspects, in overall, the best future electricity generation mix option for Zambia is scenario with higher hydropower (40%) penetration, wind (30%), solar (20%), and lower biomass (10%) penetration in the overall electricity generation fuel mix, which is mainly due to environmental issues and availability of primary energy resources. The results further indicate that solar ranks first in most of the scenarios even after the penetration weights of RES are adjusted in the sensitivity analysis. The wind was ranked second in most of the scenarios followed by hydropower and last was biomass. These developed electricity generation fuel mix pathways would enable the country meeting the future electricity generation needs target at minimized environmental and social impacts by 2035. Therefore, this study is essential to assist in policy and decision making including planning at strategic level for sustainable energy diversification.     

Study on the decision-making of district cooling and heating systems by means of value engineering

A district cooling and heating (DCH) system can provide both cooling and heating for blocks of buildings in cold climate areas, however, different thermal source schemes of a DCH project always differ in their first cost, operating cost, maintenance cost, regulation performance, control performance, energy-saving and environment protection performance, etc. In order to evaluate various DCH thermal source schemes quantitatively, the paper firstly establishes an evaluation model based on value engineering theory. It then elaborates on how this model is applied in the first seawater source heat pump DCH project in China—Dalian Xinghai Bay project. The calculation results show that even though the scheme of seawater source heat pump system is not economical under commercial electricity price mainly because of its relatively high initial cost, yet it has the highest value coefficient under civil electricity price. This also implies that privileges of policy for renewable energy utilization system are necessary to help promote the energy-saving and environment-friendly scheme of seawater source heat pump system.