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Optimal Allocation of Variable Renewable Energy Considering Contributions to Security of Supply

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  • Jakob Peter and Johannes Wagner
Abstract
Electricity markets are increasingly influenced by variable renewable energy such as wind and solar power, characterized by a pronounced weather-induced variability and imperfect predictability. As a result, the evaluation of the capacity value of variable renewable energy, i.e., its contribution to security of supply, gains importance. This paper develops a new methodology to endogenously determine the capacity value in large-scale investment and dispatch models for electricity markets. The framework allows balancing effects to be accounted for that arise due to the spatial distribution of generation capacities and interconnectors. The practical applicability of the methodology is shown with an application for wind power in Europe. We find that wind power can substantially contribute to security of supply in a decarbonized European electricity system in 2050, with regional capacity values ranging from 1-40%. Analyses that do not account for the temporal and spatial heterogeneity of the contribution of wind power to security of supply therefore lead to inefficient levels of dispatchable back-up capacity. Applying a wind power capacity value of 5% results in an overestimation of firm capacity requirements in Europe by 66 GW in 2050. This translates to additional firm capacity provision costs of 3.8 bn EUR per year in 2050, which represents an increase of 7%.

Suggested Citation

  • Jakob Peter and Johannes Wagner, 2021. "Optimal Allocation of Variable Renewable Energy Considering Contributions to Security of Supply," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 229-260.
  • Handle: RePEc:aen:journl:ej42-1-peter
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    Citations

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    Cited by:

    1. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Kozlova, Mariia & Huhta, Kaisa & Lohrmann, Alena, 2023. "The interface between support schemes for renewable energy and security of supply: Reviewing capacity mechanisms and support schemes for renewable energy in Europe," Energy Policy, Elsevier, vol. 181(C).
    3. Simshauser, P., 2021. "Renewable Energy Zones in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2119, Faculty of Economics, University of Cambridge.
    4. Astier, Nicolas & Ovaere, Marten, 2022. "Reliability standards and generation adequacy assessments for interconnected electricity systems," Energy Policy, Elsevier, vol. 168(C).
    5. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    6. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    7. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    8. McDonald, Paul, 2023. "Locational and market value of Renewable Energy Zones in Queensland," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 198-213.
    9. Mariia Kozlova & Alena Lohrmann, 2021. "Steering Renewable Energy Investments in Favor of Energy System Reliability: A Call for a Hybrid Model," Sustainability, MDPI, vol. 13(24), pages 1-18, December.
    10. Bigerna, Simona & Ceccacci, Francesca & Micheli, Silvia & Polinori, Paolo, 2023. "Between saying and doing for ensuring energy resources supply: The case of Italy in time of crisis," Resources Policy, Elsevier, vol. 85(PA).
    11. Inka Ruponen & Mariia Kozlova & Mikael Collan, 2021. "Ex-Ante Study of Biofuel Policies–Analyzing Policy-Induced Flexibility," Sustainability, MDPI, vol. 14(1), pages 1-15, December.
    12. Ehrhart, Karl-Martin & Ott, Marion & Seifert, Stefan & Wang, Runxi, 2024. "Combinatorial auctions for renewable energy — potentials and challenges," Energy Policy, Elsevier, vol. 186(C).

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    JEL classification:

    • F0 - International Economics - - General

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