The long-term impacts of carbon and variable renewable energy policies on electricity markets
Abstract
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,more »
- Authors:
-
- Argonne National Lab. (ANL), Argonne, IL (United States). Center for Energy, Environmental, and Economic Systems Analysis, Energy Systems Division
- 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
- Publication Date:
- Research Org.:
- Argonne National Lab. (ANL), Argonne, IL (United States)
- Sponsoring Org.:
- USDOE Office of Energy Efficiency and Renewable Energy (EERE), Renewable Power Office. Wind Energy Technologies Office
- OSTI Identifier:
- 1558786
- Alternate Identifier(s):
- OSTI ID: 1693772
- Grant/Contract Number:
- AC02-06CH11357; DE AC02-06CH11357
- Resource Type:
- Journal Article: Accepted Manuscript
- Journal Name:
- Energy Policy
- Additional Journal Information:
- Journal Volume: 131; Journal Issue: C; Journal ID: ISSN 0301-4215
- Publisher:
- Elsevier
- Country of Publication:
- United States
- Language:
- English
- Subject:
- 29 ENERGY PLANNING, POLICY, AND ECONOMY; Carbon policy; Electricity markets; Generation expansion planning; Production cost modeling; Renewable energy policy; Variable renewable energy
Citation Formats
Levin, Todd, Kwon, Jonghwan, and Botterud, Audun. The long-term impacts of carbon and variable renewable energy policies on electricity markets. United States: N. p., 2019.
Web. doi:10.1016/j.enpol.2019.02.070.
Levin, Todd, Kwon, Jonghwan, & Botterud, Audun. The long-term impacts of carbon and variable renewable energy policies on electricity markets. United States. https://doi.org/10.1016/j.enpol.2019.02.070
Levin, Todd, Kwon, Jonghwan, and Botterud, Audun. 2019.
"The long-term impacts of carbon and variable renewable energy policies on electricity markets". United States. https://doi.org/10.1016/j.enpol.2019.02.070. https://www.osti.gov/servlets/purl/1558786.
@article{osti_1558786,
title = {The long-term impacts of carbon and variable renewable energy policies on electricity markets},
author = {Levin, Todd and Kwon, Jonghwan and Botterud, Audun},
abstractNote = {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.},
doi = {10.1016/j.enpol.2019.02.070},
url = {https://www.osti.gov/biblio/1558786},
journal = {Energy Policy},
issn = {0301-4215},
number = C,
volume = 131,
place = {United States},
year = {Fri May 03 00:00:00 EDT 2019},
month = {Fri May 03 00:00:00 EDT 2019}
}
Web of Science
Works referenced in this record:
The main support mechanisms to finance renewable energy development
journal, December 2014
- Abolhosseini, Shahrouz; Heshmati, Almas
- Renewable and Sustainable Energy Reviews, Vol. 40
A retrospective analysis of benefits and impacts of U.S. renewable portfolio standards
journal, September 2016
- Barbose, Galen; Wiser, Ryan; Heeter, Jenny
- Energy Policy, Vol. 96
Market and policy risk under different renewable electricity support schemes
journal, September 2015
- Boomsma, Trine Krogh; Linnerud, Kristin
- Energy, Vol. 89
Capacity market design and renewable energy: Performance incentives, qualifying capacity, and demand curves
journal, January 2018
- Byers, Conleigh; Levin, Todd; Botterud, Audun
- The Electricity Journal, Vol. 31, Issue 1
Power System Capacity Expansion Under Higher Penetration of Renewables Considering Flexibility Constraints and Low Carbon Policies
journal, November 2018
- Chen, Xinyu; Lv, Jiajun; McElroy, Michael B.
- IEEE Transactions on Power Systems, Vol. 33, Issue 6
Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market
journal, December 2018
- Coester, Andreas; Hofkes, Marjan W.; Papyrakis, Elissaios
- Applied Energy, Vol. 231
Combinations of support instruments for renewable electricity in Europe: A review
journal, December 2014
- del Río, Pablo; Mir-Artigues, Pere
- Renewable and Sustainable Energy Reviews, Vol. 40
Wholesale electricity market design with increasing levels of renewable generation: Incentivizing flexibility in system operations
journal, May 2016
- Ela, E.; Milligan, M.; Bloom, A.
- The Electricity Journal, Vol. 29, Issue 4
The dynamic impact of carbon reduction and renewable support policies on the electricity sector
journal, March 2014
- Fagiani, Riccardo; Richstein, Jörn C.; Hakvoort, Rudi
- Utilities Policy, Vol. 28
Comparing different support schemes for renewable electricity in the scope of an energy systems analysis
journal, October 2014
- Fais, Birgit; Blesl, Markus; Fahl, Ulrich
- Applied Energy, Vol. 131
How can the renewables targets be reached cost-effectively? Policy options for the development of renewables and the transmission grid
journal, May 2018
- Held, Anne; Ragwitz, Mario; Sensfuß, Frank
- Energy Policy, Vol. 116
Towards a comprehensive policy for electricity from renewable energy: Designing for social welfare
journal, February 2017
- Iychettira, Kaveri K.; Hakvoort, Rudi A.; Linares, Pedro
- Applied Energy, Vol. 187
Electricity market design for generator revenue sufficiency with increased variable generation
journal, December 2015
- Levin, Todd; Botterud, Audun
- Energy Policy, Vol. 87
Capacity Adequacy and Revenue Sufficiency in Electricity Markets With Wind Power
journal, May 2015
- Levin, Todd; Botterud, Audun
- IEEE Transactions on Power Systems, Vol. 30, Issue 3
On the impact of FIT policies on renewable energy investment: Based on the solar power support policies in China's power market
journal, August 2016
- Liu, Cengceng; Li, Nan; Zha, Donglan
- Renewable Energy, Vol. 94
The missing money problem: Incorporation of increased resources from wind in a representative US power market
journal, October 2018
- McElroy, Michael B.; Chen, Xinyu; Deng, Yawen
- Renewable Energy, Vol. 126
Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability
journal, March 2016
- Milligan, Michael; Frew, Bethany A.; Bloom, Aaron
- The Electricity Journal, Vol. 29, Issue 2
Towards a green energy economy? The EU Energy Union’s transition to a low-carbon zero subsidy electricity system – Lessons from the UK’s Electricity Market Reform
journal, October 2016
- Newbery, David M.
- Applied Energy, Vol. 179
Heterogeneous Unit Clustering for Efficient Operational Flexibility Modeling
journal, May 2014
- Palmintier, Bryan S.; Webster, Mort D.
- IEEE Transactions on Power Systems, Vol. 29, Issue 3
Renewable generation expansion under different support schemes: A stochastic equilibrium approach
journal, May 2018
- Pineda, Salvador; Boomsma, Trine K.; Wogrin, Sonja
- European Journal of Operational Research, Vol. 266, Issue 3
The structural impact of renewable portfolio standards and feed-in tariffs on electricity markets
journal, November 2016
- Ritzenhofen, Ingmar; Birge, John R.; Spinler, Stefan
- European Journal of Operational Research, Vol. 255, Issue 1
Evaluating the impact of FIT financial burden on social welfare in renewable expansion planning
journal, March 2015
- Sadeghi, Hadi; Abdollahi, Amir; Rashidinejad, Masoud
- Renewable Energy, Vol. 75
Renewable electricity support systems: Are feed-in systems taking the lead?
journal, September 2017
- Schallenberg-Rodriguez, Julieta
- Renewable and Sustainable Energy Reviews, Vol. 76
Impact of renewables on electricity markets – Do support schemes matter?
journal, June 2016
- Winkler, Jenny; Gaio, Alberto; Pfluger, Benjamin
- Energy Policy, Vol. 93
Assessing the costs and benefits of US renewable portfolio standards
journal, September 2017
- Wiser, Ryan; Mai, Trieu; Millstein, Dev
- Environmental Research Letters, Vol. 12, Issue 9
Works referencing / citing this record:
The Potential Role of Flexibility During Peak Hours on Greenhouse Gas Emissions: A Life Cycle Assessment of Five Targeted National Electricity Grid Mixes
journal, November 2019
- Munné-Collado, Ingrid; Aprà, Fabio Maria; Olivella-Rosell, Pol
- Energies, Vol. 12, Issue 23