Energy Economics

1.a) Why would Germany built a Direct Current (DC) transmission line from the Northern part to the Southern part (a distance of more than 500 km)? Briefly motivate your answer.

b) Netherlands is connected with Norway by a 580-kilometer long transmission line to Norway (called NordNed). Will this be an AC or DC line? Briefly motivate your answer.

c) Mention one country that has the same frequency (Japan is thus excluded), but not everywhere the same synchronicity.

2. (Maximum 10 points ) Which type of electricity generation creates the most carbon emissions and which the least.

• Monday, double lecture in computer lab– 13:30-15:00 & 15:15-16:45

Renewables EfficiencyCarbon emissions

EU’s 20-20-20 strategy for 2020

Addresses the main problem

Literature:• Böhringer, C., Rosendahl, K,E, 2009. Green serves the dirtiest. Discussion

Papers No. 581, April 2009 Statistics Norway, Research Department• Taylor Taylor, G., Tanton, T. 2012. The hidden cost of wind electricity.

American tradition institute. http://www.atinstitute.org/wp-content/uploads/2012/12/Hidden-Cost.pdf

Effects of intermittent generation

1. Effect of subsidized intermittent generation (eg renewables) on the price of electricity

Renewables lower electricity prices: Good news?

• "We learn (page 1) that German wholesale electricity prices are down from 5.115 cents estimated in 2012 to around 3.9 cents. Let’s just note that renewable energy has reduced wholesale prices  by 1.2 cents per kWh.„

• "Multiply that by the 482 TWh they expect Germany to consume next year (page 21) , and we see that renewable energy will reduce wholesale prices by EUR 5.784 billion next year."

Dr. Karl-Friedrich Lenz is a professor of German and European Law at Aoyama Gakuin University in Tokyo

http://cleantechnica.com/2013/09/03/renewable-reducing-electricity-prices-in-germany/#mSySxjbiJeXeIWuq.99

10

50

P=10 P=50

DLDH

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50

prob DL DH

50% 50%10% 10 50

1 200

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50

prob DL DH

50% 50%10% 10 50

50% 10 50% 50 30P

10

50 DL

DH

P=10 P=50

Average electricity price

50% ( ) 50% ( )L HQR P MC P MC

50% 50%L HP P P

50% (0) 50% (40) 20QR

10

50

P=10 P=50

Wind outputUnits Probability

2 10%1 20%0 70%

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

DLDH

1 200

Heavily subsidize to get 40% electricity from wind

P=10 P=50

10

50

0

P=0 P=0

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

DLDH

1 20

Wind outputUnits Probability

2 10%1 20%0 70%

P=10 P=50

10

50

0

P=0 P=10

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

DLDH

1 20

Wind outputUnits Probability

2 10%1 20%0 70%

P=10 P=50

10

50

0

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

DLDH

1 20

Wind outputUnits Probability

2 10%1 20%0 70%

Wind availability

prob DL DH

50% 50%2 10% 0 01 20% 0 100 70% 10 50

( ) 70% 10 20% 0 10% 0 7LP D

( ) 70% 50 20% 10 10% 0 37HP D

50% 7 50% 37 22P 0

Average electricity price

10

50

P=10 P=50

70%

DL

DH

10

50

P=0 P=10

20%

DL

DH

10

50

0

P=0 P=0

10%

DL

DH

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

Electricity price

Wind availability

prob DL DH

50% 50%2 10% 0 01 20% 0 100 70% 10 50

20% 50% (10 0)QR

10

Average earnings of Wind

10

50

P=10 P=50

70%

DL

DH

10

50

P=0 P=10

20%

DL

DH

10

50

0

P=0 P=0

10%

DL

DH

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

Electricity price

50% 7 50% 37 22P Average electricity price

23.5 1 22.5 1550% 1 50% 2 1.5

Uplift on electricity price

22 15 37

Average electricity charge

23% increase in charges for consumers!

10

50

P=10 P=50

70%

DL

DH

10

50

P=0 P=10

20%

DL

DH

10

50

0

P=0 P=0

10%

DL

DH

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 23.5 0

Average charge without wind: 30

• Summary• Wholesale price before: E30/MWh After:E22/MWh• Consumer price before: E30/MWh After:E37/MWh

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 22.5 0

70% 50% (50 10)QR

70% 20 14 0

10

50

P=10 P=50

70%

DL

DH

10

50

P=0 P=10

20%

DL

DH

10

50

0

P=0 P=0

10%

DL

DH

Average Baseload earning (QR)

Wind availability

prob DL DH

50% 50%2 10% 0 01 20% 0 100 70% 10 50

Electricity price

• Summary• Wholesale price before: E30/MWh After:E22/MWh• Consumer price before: E30/MWh After:E37/MWh

• QR BL before: E20/MWh After:E14/MWh(“profiling costs”)

– How much money should we raise for BL?– How would this affect consumer price?

• 6/1.5=4 -> consumer price increases to E41/MWh

Effects of intermittent generation

1. Effect of subsidized intermittent generation (eg renewables) on the price of electricity

– Wholesale-market price low, end-user price high– Other plants (especially gas) do not recover costs

• Examples of effect on power plants

Irsching-5 in Bavaria, Germany (EON )

A gas-fired power station,Commissioned in 2010

“Germany needs flexible gas plants to underpin a greater share of renewable sources”

German environment Minister Peter Altmaier

“energy providers have little interest in building new power plants”

Der Spiegel, October 10, 2012

• Effect on consumers

Czech Republic

Germany Spain

Electricity prices 2001-2012

http://epp.eurostat.ec.europa.eu/portal/page/portal/energy/data/main_tables

€24 billion deficit

Units Fixed cost

Variable cost

Baseload 1 20 10Peaker 1 0 50Wind 2 22.5 0

Wind availability

prob DL DH

50% 50%2 10% 0 01 20% 0 100 70% 10 50

( ) 70% 10 20% 0 10% 0 7LP D

( ) 70% 50 20% 10 10% 0 37HP D

50% 7 50% 37 22P 0

Average electricity price10

50

P=10 P=50

70%

DL

DH

10

50

P=0 P=10

20%

DL

DH

10

50

0

P=0 P=0

10%

DL

DH

Effects of intermittent generation

1. Effect of subsidized intermittent generation (eg renewables) on the price of electricity

– Wholesale-market price low, end-user price high– Other plants (especially gas) do not recover costs

2. Effect on other power plants– Cycling/ramping problem – balancing costs

• Leads to negative price spikes!

10

50

0

P=0 P=0

10%

DL

DH

Add shutdown and start-up costs (cycling costs)

Baseload plants don’t like cycling

Corrosion fatigue

Cracked header

• Market reaction?

• Use more plants with lower cycling costs– Open Cycle Gas Generators (OCCG)

– Also more inefficient and more CO2 emissions.

Emission: 87

80% of wind capacity

Emission: 0

40% of wind capacity

Emission: 28

20% of wind capacity

Emission: 97

0% of wind capacity

Emission: 205

• Denny & O’Malley (2005)  2005 study on Ireland shows that carbon emission savings using wind generation are lowered by 20%-30% due to cycling– Assumes wind penetration of 3%

• Hirth (2013), basing his approximation on a literature study, uses a (fixed) estimate of E4/MWh as balancing cost.

• Once intermittent generation has high penetration levels, the cycling problem becomes very large

http://theenergycollective.com/jeffstjohn/339451/hawaiis-solar-grid-landscape-and-nessie-curve

• How can negative prices come about in Germany?– Mandatory dispatch of wind and solar– “Must-run” generation

• Central Heating and Power plants (CHP)

– Baseload plants don’t like cycling

• For what price would a baseload plant (eg a big nuclear) bid in its electricity?– (DA & ID)

• Day-Ahead market (DA market)– Bid your quantity and price for each hour of the

next day– Market closes at 14:00.– Eg. On 1st June at 13:59, I send in a schedule

for 2nd June with 24 quantity-price bids (one for each hour)

• Intra-Day market (ID market)– Bid for 2 hours ahead– Eg.: On 2nd June, before 3:59 I send in one

quantity-price bid for the hour 6:00-7:00.