A Two-Part Feed-in-Tariff for Intermittent Electricity Generation

As electricity generation from intermittent energy sources (wind, sun, tides) is gaining momentum, it becomes increasingly important to price these electricity sources efficiently. Conventional flat feed-in-tariffs ignore the heterogeneity of these sources. Taking into account the degree of substitutability or complementarity of these sources with respect to each other and with respect to stochastic demand variations, this paper derives optimal pricing instruments composed of a feed-in-tariff (FIT) and a capacity-augmentation-tariff (CAT). An empirical analysis looks at wind and solar farms operating in Ontario in order to determine the optimal use of FIT-CAT pricing. The magnitude of optimal price differentiation turns out to be economically significant. Furthermore, the emergence of grid-scale electricity storage underscores the need to price energy and capacity separately.

[1]  Ontario electricity: When prophecy failed but rent collection succeeded , 2017 .

[2]  D. Steinberg,et al.  Modeling the value of integrated U.S. and Canadian power sector expansion , 2017 .

[3]  Werner Antweiler,et al.  Cross-border trade in electricity , 2016 .

[4]  Pierre-Olivier Pineau,et al.  Influence of wind power on hourly electricity prices and GHG (greenhouse gas) emissions: Evidence that congestion matters from Ontario zonal data , 2014 .

[5]  Axel Ockenfels,et al.  Capacity Market Fundamentals , 2013 .

[6]  Phillip Brown,et al.  European Union Wind and Solar Electricity Policies: Overview and Considerations , 2013 .

[7]  L. Stokes.  The politics of renewable energy policies: The case of feed-in tariffs in Ontario, Canada , 2013 .

[8]  G. Aj.  A New Blueprint for Ontario's Electricity Market , 2013 .

[9]  H. Jacobsen,et al.  Curtailment of renewable generation: Economic optimality and incentives , 2012 .

[10]  Pablo del Río,et al.  The dynamic efficiency of feed-in tariffs: The impact of different design elements , 2012 .

[11]  Paul L. Joskow,et al.  Creating a Smarter U.S. Electricity Grid , 2012 .

[12]  B. Dunn,et al.  Electrical Energy Storage for the Grid: A Battery of Choices , 2011, Science.

[13]  Adonis Yatchew,et al.  Ontario feed-in-tariff programs , 2011 .

[14]  R. Green,et al.  The long-term impact of wind power on electricity prices and generating capacity , 2011, 2011 IEEE Power and Energy Society General Meeting.

[15]  G. Brunekreeft,et al.  How to deal with negative power price spikes?--Flexible voluntary curtailment agreements for large-scale integration of wind , 2010 .

[16]  S. Fink,et al.  Examples of Wind Energy Curtailment Practices , 2010 .

[17]  Y. Gagnon,et al.  An analysis of feed-in tariff remuneration models: Implications for renewable energy investment , 2010 .

[18]  Erik Ela.  Using Economics to Determine the Efficient Curtailment of Wind Energy , 2009 .

[19]  M. Genoese,et al.  The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany , 2008 .

[20]  Karsten Neuhoff,et al.  Comparison of feed-in tariff, quota and auction mechanisms to support wind power development , 2008 .

[21]  J. Lesser,et al.  Design of an economically efficient feed-in tariff structure for renewable energy development , 2008 .

[22]  Mario Ragwitz,et al.  Evaluation of different feed-in tariff design options – Best practice paper for the International Feed-In Cooperation , 2008 .

[23]  Knut Einar Rosendahl,et al.  Climate policies and learning by doing: Impacts and timing of technology subsidies , 2007 .

[24]  Chi-Keung Woo,et al.  Designing Pareto-superior demand-response rate options , 2006 .

[25]  Marc J. Melitz.  When and how should infant industries be protected , 2005 .

[26]  K. Neuhoff.  Large-Scale Deployment of Renewables for Electricity Generation , 2005 .

[27]  I. Rowlands.  Envisaging feed-in tariffs for solar photovoltaic electricity: European lessons for Canada , 2005 .

[28]  Wim Turkenburg,et al.  Global experience curves for wind farms , 2005 .

[29]  Jean Tirole,et al.  Reliability and Competitive Electricity Markets , 2004 .

[30]  Philippe Menanteau,et al.  Prices versus quantities: choosing policies for promoting the development of renewable energy , 2003 .

[31]  Hung-po Chao,et al.  Multi-Dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules , 2002 .

[32]  I. Horowitz,et al.  The Hopkinson tariff alternative to TOU rates in the Israel Electric Corporation , 2002 .

[33]  T. Rutherford,et al.  Climate Policies and Induced Technological Change: Which to Choose the Carrot or the Stick? , 2001 .

[34]  M.D. Anderson,et al.  Dynamic pricing [of electricity] , 2000, IEEE Potentials.

[35]  Dewey Seeto,et al.  Time-of-use rates vs. Hopkinson tariffs redux: an analysis of the choice of rate structures in a regulated electricity distribution company , 1997 .

[36]  F. Branco.  The Design of Multidimensional Auctions , 1997 .

[37]  Dieter Bos.  Peak-Load-Pricing , 2019, Optimierung von Versorgungsnetzen.