Harnessing Renewable Energy in Electric Power Systems

Theory, Practice, Policy

Boaz Moselle, Jorge Padilla, Richard Schmalensee

• Publisher: Routledge
• Year: 2010
• Print ISBN:
  9781933115900
• eBook ISBN:
  9781136522130
• Topic: Technology & Engineering
• Subtopic: Environmental Economics
• Index: Technology & Engineering

Reflecting its reliance on fossil fuels, the electric power industry produces the majority of the world's greenhouse gas emissions. The need for a revolution in the industry becomes further apparent given that 'decarbonization' means an increasing electrification of other sectors of the economy in particular, through a switch from gasoline to electric vehicles. Of the options for producing electric power without significant greenhouse gas emissions, renewable energy is most attractive to policymakers, as it promises increased national self-reliance on energy supplies and the creation of new industries and jobs, without the safety and political concerns of nuclear power or the unproven technology of carbon capture and storage.

Drawing on both economic theory and the experiences of the United States and EU member states, Harnessing Renewable Energy addresses the key questions surrounding renewable energy policies. How appropriate is the focus on renewable power as a primary tool for reducing greenhouse gas emissions? If renewable energy is given specific support, what form should that support take? What are the implications for power markets if renewable generation is widely adopted? Thorough and well-evidenced, this book will be of interest to a broad range of policymakers, the electric power industry, and economists who study energy and environmental issues.

1

Toward a Low-Carbon Future in Electricity?

Boaz Moselle, Jorge Padilia, and Richard Schmalensee

Wide consensus exists that the world’s energy system requires a significant transformation in order to address the issue of climate change. In particular, the electric power system needs to switch from its carbon-intensive present, where most electricity is produced using gas and coal, to a low-carbon future where electricity is produced using some combination of renewable sources, such as hydro, wind, biomass, tidal, and solar energy, along with nuclear power and carbon capture and storage (CCS) technology, which would allow the continued use of fossil fuels, with the carbon dioxide (CO₂) emitted from combustion being stored underground rather than escaping into the atmosphere. A radical change is needed because at present, power generation produces a major part of the world’s anthropogenic (or human-caused) carbon dioxide emissions, reflecting its reliance on fossil fuels, and moreover because decarbonization is likely to require increasing electrification of other sectors of the economy—in particular, a switch to electric or plug-in hybrid vehicles.

Of the options for producing electric power without significant greenhouse gas emissions, renewable generation technologies such as hydro-electricity wind power, solar power, and biomass are generally more attractive to policymakers than either nuclear power, which brings with it concerns about safety and waste storage as well as difficult political challenges, or CCS, a new and as yet unproven technology. Renewables are also perceived to have other important attractions: increased national self-reliance contributing to security of energy supply, industrial policy goals for countries that see themselves as leaders in developing new green technologies, and domestic job creation.

This book therefore addresses a set of key questions concerning the role of renewable electricity generation in addressing climate change—questions that are central to the current concerns of policymakers, the electric power industry, and economists who study energy and environmental issues:

• At the highest level, is it right to focus on renewable power as a primary tool for reducing greenhouse gas emissions? Although environmentalists and many politicians are strong supporters of renewable energy, many economists question whether it should be singled out for support rather than being encouraged through a broad approach to reducing carbon emissions (e.g., via a tax on CO₂ emissions).
• If renewable energy is to be given specific support, what form should that take? What is the right balance between support for research and development and for deployment of renewable generation? Should all renewable technologies receive equal levels of support? If not, how should the system choose among technologies? What is the right mechanism for supporting renewable generation: straight financial payments, tax breaks, guarantees of prices at levels high enough to support investment, or a market-based method involving the trading of green certificates?
• At a more technical level—but of great importance—what are the implications for power markets of the widespread adoption of renewable generation? Is this trend compatible with the shift (or aspiration) toward liberalized, competitive markets that is seen in the European Union and much of the United States? What are the implications for system reliability of the use of intermittent resources, such as wind and sunshine, for a large part of generation capacity? Will markets provide needed backup generation, or is regulatory intervention required?

The various chapters in this book provide objective analysis of these questions, drawing on economic theory and evidence, including the experiences of U.S. states and EU member states that have devoted considerable resources to the promotion of renewable generation over the past decade or more. The focus is on the application of rigorous economic analysis to derive insights that have practical implications for policy in this area. The book is the result of a cooperative effort among a set of authors that includes both academics and policymakers, with a range of specialties covering renewable technology, environmental and natural resource economics, energy economics and industrial organization, and with specific knowledge of the energy sector, electric power markets, and renewables policy in Europe, the United States, and globally.

Although many books currently exist on climate change-related topics, most of these address different issues than this one. Many are focused on the scientific issues around global climate change and its implications in such areas as agriculture, migration, or public health (see, e.g., Kruger 2006; Tester et al. 2005). Others focus on policy responses to climate change, often from a political science or international relations perspective (see, e.g., Dodds et al. 2009; Giddens 2009; Kalicki and Goldwyn 2005; Mitchell 2010; Stern 2009). Although a number of important texts have been written on the economics of global climate (e.g., Helm and Hepburn 2009), only a few address the role of renewable energy as part of climate change mitigation and the challenges that renewable generation poses for electricity markets (e.g., Grubb, Jamasb and Pollitt 2008).

This book differs from others on renewables in breadth and depth. It deals with technology issues, wide policy questions (such as the impact of renewables support on the climate change and security of supply goals of most governments), and practical implementation issues (e.g., the implications for system design, market performance, and policy design of massive deployment of renewable energy). It also describes the renewables policies and experiences of the United States, the European Union, the United Kingdom, Germany, and Spain and examines the lessons that can be extracted from them.

The book is organized into four parts. In Part I, Technology, Godfrey Boyle reviews in Chapter 2 each of the technologies covered in the book from both an economic and an engineering viewpoint, considering the impact of each on system operation, as well as its contribution to sustainability and economic efficiency.

Part II, Renewables, Climate Change, and Energy Policy, focuses on the high-level energy policy concerns that underlie renewables policy. In Chapter 3, Erin Mansur discusses how widespread concerns about climate change and policymakers’ and voters’ preferences will affect the development of renewable energy use. Boaz Moselle in Chapter 4 looks at the other main driver of renewables policy, the desire to develop indigenous sources of energy to meet security of supply concerns. He analyzes the main security of supply issues that drive the European debate, notably the question of reliance on Russian gas imports. Next, in Chapter 5, Kenneth Gillingham and James Sweeney delve into the economic motivation for renewable energy policies by highlighting the classes of relevant market failures. Key policy instruments are evaluated in the context of different market structures, with the goal of informing future policies in the renewable energy sector. Finally, José Goldemberg provides in Chapter 6 a broad economic analysis of the relationships among four important instruments that have become common in renewable energy policy: subsidies to renewable energy, emissions trading, the promotion of energy efficiency, and the Clean Development Mechanism developed under the Kyoto Protocol.

Part III, Renewable Generation and Electric Power Markets, focuses one level down, looking at the implications of renewable generation for electric power markets. In Chapter 7, William Hogan discusses the difficulties associated with deploying renewable electricity in large-scale wholesale electricity markets. He considers such issues as system design, transmission and distribution, and the development of smart grids, with special emphasis placed on the problems of integrating wind power into wholesale market design. Chapter 8, by Richard Green, considers the regulatory issues that will arise from the desire to integrate large-scale renewable energy deployment into existing electricity markets and discusses how these issues can be resolved. James Bushnell in Chapter 9 studies the intersection of two important trends: the restructuring of electricity markets and the growth of environmental regulation. He provides an empirical study that elucidates how the increasing penetration of intermittent renewable generation will alter the economics of investment in conventional thermal generation. Finally, in Chapter 10, Christian von Hirschhausen addresses the development of a ‘supergrid’, which is currently being debated in the context of harnessing renewable energy. Using one of the more advanced concepts for a ‘supergrid’ in the European/North African region, the discussion also highlights the practical obstacles in the way of the realization of such a project.

Part IV, National Experiences, offers insights from the experiences of various countries, with individual chapters on the United States, the European Union, the United Kingdom, Germany, and Spain. The aim here is to capture lessons both from the different policies and policy instruments that have been applied and from differences in the policy concerns and debates across the various countries. In Chapter 11, Richard Schmalensee analyzes the development of renewable energy policies and deployment in the United States. He compares and contrasts the growth of renewable electricity deployment in Texas and California, highlighting the ability of well-tailored policy to advance the growth of renewable energy use, and discusses the difficulties of integrating wind power into the existing market framework. Christopher Jones in Chapter 12 provides an in-depth analysis of the emergence of the European Union’s renewables policy, in the context of its wider climate change and energy security concerns. He describes the policy tools adopted and analyzes some of the key issues arising, such as the relationship with the EU Emissions Trading Scheme and the role of trading within the renewables promotion framework.

The remaining case studies concern three EU member states. Michael Pollitt in Chapter 13 examines the United Kingdom’s renewable energy policy in the context of its overall decarbonization and energy policies. He explores the shortcomings of the UK renewables policy to date and suggests policy changes that would better suit the country’s institutional and resource endowments. In Chapter 14, Hannes Weigt and Florian Leuthold discuss the development of renewable energy policy and deployment in Germany. In particular, they examine the implications of current policy for market design and future development, with a particular focus on the growing share of wind energy. Finally, Chapter 15, by Luis Agosti and Jorge Padilla, analyzes the regulatory schemes and market structure that have made possible the rapid growth of the Spanish renewables sector in recent years, as well as the consequences of this growth for the Spanish gas and power markets. The chapter focuses in particular on the impact of the large-scale deployment of wind generation on system operation and balancing, wholesale prices, competition, and investment incentives.

It is now widely accepted that a low-carbon world is technically feasible, and that renewables are likely to have a significant long-term role to play in the future energy system. The relevant question today is not whether renewables should be supported, but rather how to harness these technologies so that they can effectively and efficiently contribute to the ultimate goal of mitigating harmful climate change.

References

Dodds, Felix, Andrew Higham and Richard Sherman. Foreword by Achim Steiner. 2009. Climate Change and Energy Insecurity. London: Earthscan.

Giddens, Anthony. 2009. The Politics of Climate Change. Cambridge, UK: Polity Press.

Grubb, Michael, Tooraj Jamasb, and Michael Pollitt, eds. 2008. Delivering a Low Carbon Electricity System. Cambridge, UK: Cambridge University Press.

Helm, Dieter, and Cameron Hepburn, eds. 2009. The Economics and Politics of Climate Change. Oxford: Oxford University Press.

Kalicki, Jan H., and David L. Goldwyn, eds. 2005. Energy & Security. Baltimore: Johns Hopkins University Press.

Kruger, Paul. 2006. Alternative Energy Resources: The Quest for Sustainable Energy. Hoboken, NJ: Wiley-Blackwell.

Mitchell, Catherine. 2010. The Political Economy of Sustainable Energy. Basingstoke, UK: Palgrave Macmillan.

Stern, Nicholas. 2009. A Blueprint for a Safer Planet. London: The Bodley Head Ltd.

Tester, Jefferson W., Elisabeth M. Drake, Michael J. Driscoll, Michael W. Golay and William A. Peters 2005. Sustainable Energy: Choosing Among Options. Cambridge, MA: MIT Press.

Part I

Technology

2

Renewable Energy Technologies for Electricity Generation

Godfrey Boyle

It is tempting to imagine that the 17th-century poet and mystic William Blake was thinking of renewable energy when, in The Marriage of Heaven and Hell, he declared that “Energy is Eternal Delight” (Blake 1790). Renewable energy is usually described in more prosaic terms, however. According to the International Energy Agency’s definition, “Renewable energy is derived from natural processes that are replenished constantly” (IEA 2002). Similarly, Twidell and Weir (1986) define it as “energy obtained from the continuous or repetitive currents of energy recurring in the natural environment.”

How, then, should “renewable energy technologies” be defined? The following working definition may suffice: renewable energy technologies are those technologies that enable constantly replenished renewable energy flows to be harnessed to produce power in forms useful to humanity on a sustainable basis.

The sun is the source of the vast majority of the power that drives the abundant and varied sources of renewable energy that are available to humanity on the earth. The total quantity of solar power incident on our planet is approximately four orders of magnitude greater than our current rate of use of fossil and nuclear fuels.

Solar radiation can be used directly, to provide heating, lighting, and hot water in buildings and to generate electricity. The sun also powers the world’s weather systems and is thus the indirect source of hydro, wind, and wave power. It also drives the process of photosynthesis in plants and so is the energy source underlying biofuels in their various forms.

Two other terms that should be defined here at the outset are “energy” and “power.” Energy is defined as the capacity to do work: that is, to move an object against a resisting force. In everyday language, the word “power” is often used as a synonym for “energy,” but this...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• About Resources for the Future and RFF Press
• Contents
• About the Contributors
• List of Figures and Tables
• Acknowledgments
• List of Acronyms and Abbreviations
• Foreword
• Chapter 1 Toward a Low-Carbon Future in Electricity?
• Part I Technology
• Part II Renewables, Climate Change, and Energy Policy
• Part III Renewable Generation and Electric Power Markets
• Part IV National Experiences
• Index