Ee w08.1 m_ 3. renewables and the electricity industry (climate change)

Energy Economics

• 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.

DS=MC

€/MWH Uniform price auction

60

0

-150

DS=MC


60

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DS=MC


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DS=MC


60

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-150What if these generators have high startup costs? Or they simply cannot ramp down enough so quickly?

DS=MC


60

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DS=MC


60

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Renewables in Germany have mandatory dispatch

DS=MC


60

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-150

Renewables in Germany have mandatory dispatch

What would be an improvement here?

DS=MC


60

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No mandatory dispatch, renewables bid in at true MC or MC=0

What would be an improvement here?

German electricity wholesale market

• Effect on load-duration curve

Load-duration curve steeper

But net demand more variable

Renewables EfficiencyCarbon emissions

EU’s 20-20-20 strategy for 2020

• Renewables are the solution as proposed by politicians– central planning approach– “picking winners”

• Maybe we should not expect politicians to be the ones who can point out the solution.

• In foreign trade politicians have a terrible track record

2008 Nobel price winner Paul Krugman

How to create a framework that leads to

cleaner electricity?

WITHOUT POLITICIANS PICKING “WINNERS”?

2mT 4mT 5mT

A B C

Emissions:

2mT 4mT 5mT

A B C

Emissions:

4$/T 5$/T 20$/TAbatement cost:

2mT

A B C

4$/T 5$/T 20$/TAbatement cost:Abatement-investment

7$/T

5mT4mT1mT

1$/T

Emissions:

A B C

Abatement cost:Abatement-investment ?Emissions:

• Need the law of one price

• 20-20-20 strategya) 20 reduction of CO2b) 20% increase in efficiencyc) 20% renewables

a) 20 reduction of CO2• How?• Against lowest costs if possible:

efficiency– Market-based– Law of one price…

• Implementation– ETS– tax

A B C

Abatement cost:Abatement-investment

Emissions:

A B C

EMISSION PERMIT MARKET

Competition for

permits

Solution 1:EU Emission Trading Scheme (EU-ETS)

Taxing

Cap-and-trade / Emission Trading System

• 2005- end 2007: Phase 1 (test phase)

• 2007- end 2012: Phase 2 (6.5% below 2005 level)

• 2012- end 2020: Phase 3 (linear 1.74% reduction/year)

Kyoto Protocol

Reduction of 21%

• 20-20-20 strategya) 20 reduction of CO2 (ETS)b) 20% increase in efficiencyc) 20% renewables

1. Points a) (ETS) gives a measure of the cost of point c) (Renewables)

2. Points a) (ETS) and point c) (Renewables)

Source: Böhringer, C., Rosendahl, K,E, 2009. Green serves the dirtiest. Discussion Papers No. 581, April 2009 Statistics Norway, Research Department

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf

Wind generation in Germany

Feed-in tariffs

• 0.50 €/kWh 0.20€/kWh

Coal or gas plant costs

0.04€/kWh

2004 2012

Case of Germany

• Marcantonini, C., Ellerman, D. 2013. The Cost of Abating CO2 Emissions by Renewable Energy Incentives in Germany. EUI Working Paper RSCAS 2013/05.http://fsr.eui.eu/Publications/WORKINGPAPERS/Energy/2013/WP201305.aspx

Wind:±€50/ tCO2

Solar:±€350/ tCO2

Why install any solar, if a ton of CO2 can be abated by wind 7 times cheaper?

Wind:±€50/ tCO2

Solar:±€350/ tCO2

Why install any wind or solar, if a ton of CO2 can be abated by buying and not using a certificate

5 to 35 times cheaper!?

• Spillover externality?– Subsidize R&D or massive deployment?

Documents

Ee w08.1 m_ 3. renewables and the electricity industry (climate change)