The long-term impacts of carbon and variable renewable energy policies on electricity markets

Journal Article · Fri May 03 00:00:00 EDT 2019 · Energy Policy

DOI:https://doi.org/10.1016/j.enpol.2019.02.070· OSTI ID:1558786

Levin, Todd ^[1]; Kwon, Jonghwan ^[1]; Botterud, Audun ^[2]

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1. Argonne National Lab. (ANL), Argonne, IL (United States). Center for Energy, Environmental, and Economic Systems Analysis, Energy Systems Division
2. Argonne National Lab. (ANL), Argonne, IL (United States). Center for Energy, Environmental, and Economic Systems Analysis, Energy Systems Division; Massachusetts Inst. of Technology (MIT), Cambridge, MA (United States). Lab. for Information and Decision Systems, Institute for Data, Systems, and Society

We present a computationally-efficient optimization model that finds the least-cost generation unit expansion, commitment, and dispatch plan to serve hourly electricity demand and ancillary service requirements. We apply the model to a case study based on data from the electricity market in Texas (ERCOT) to analyze the market and investment impacts of several incentive mechanisms that support variable renewable energy (VRE) investments and carbon emission reductions. In contrast to many previous studies, the model determines least-cost VRE investments under different cost and incentive assumptions rather than analyzing scenarios where VRE expansion is pre-determined. We find that electricity prices can vary significantly under different incentive mechanisms, even when comparable generation portfolios result. Therefore, the preferred incentive mechanism depends on stakeholder objectives as well as the prevailing electricity market framework. Our results indicate that a carbon tax is more system cost-efficient for reducing emissions, while production and investment tax credits are more system cost-efficient for increasing VRE investments. Similarly, incentive mechanisms that reduce electricity prices may increase the need for separate revenue sufficiency mechanisms (e.g. a capacity market) more than a policy that increases electricity prices. Moreover, the impacts on consumer payments are not always aligned with changes in system costs. Overall, the analysis illustrates the importance of considering electricity market impacts in assessing the economic efficiency of VRE and carbon incentive mechanisms.

• Research Organization: Argonne National Lab. (ANL), Argonne, IL (United States)
• Sponsoring Organization: USDOE Office of Energy Efficiency and Renewable Energy (EERE), Renewable Power Office. Wind Energy Technologies Office
• Grant/Contract Number: AC02-06CH11357; DE AC02-06CH11357
• OSTI ID: 1558786
• Alternate ID(s): OSTI ID: 1693772
• Journal Information: Energy Policy, Vol. 131, Issue C; ISSN 0301-4215
• Publisher: Elsevier
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
Carbon policy
Electricity markets
Generation expansion planning
Production cost modeling
Renewable energy policy
Variable renewable energy