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| 1 |
ID:
105811
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| Publication |
2011.
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| Summary/Abstract |
This paper assesses the effect of intermittently renewable energy on generation capacity mix and market prices. We consider two generating technologies: (1) conventional fossil-fueled technology such as combined cycle gas turbine (CCGT), and (2) sunshine-dependent renewable technology such as photovoltaic cells (PV). In the first stage of the model (game), when only the probability distribution functions of future daily electricity demand and sunshine are known, producers maximize their expected profits by determining the CCGT and PV capacity to be constructed. In the second stage, once daily demand and sunshine conditions become known, each producer selects the daily production by each technology, taking the capacities of both technologies as given, and subject to the availability of the PV capacity, which can be used only if the sun is shining. Using real-world data for Israel, we confirm that the introduction of PV technology amplifies price volatility. A large reduction in PV capacity cost increases PV adoption but may also raise the average price. Thus, when considering the promotion of renewable energy to reduce CO2 emissions, regulators should assess the behavior of the electricity market, particularly with respect to characteristics of renewable technologies and demand and supply uncertainties.
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| 2 |
ID:
166468
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| Summary/Abstract |
This paper employs a two-stage model to assess the consequences of an easy-to-use form of capacity payments in competitive electricity markets. We show that capacity payments increase capacity and expected consumer surplus, with little or no effect on expected social welfare (expected consumer surplus plus expected profits minus the cost of using capacity payments minus expected outage costs). In addition, we demonstrate that capacity payments can substantially reduce or, sometimes, fully eliminate electricity outage costs due to price capping or unexpected failure of some generation capacity. Thus, regulators should consider using this form of capacity payments since, in addition to their favorable effect on consumers and on social welfare, they mitigate the ‘missing money’ problem and increase system reliability.
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