The economic geography of variable renewable energy and impacts of trade formulations for renewable mandates

This paper examines electricity market responses to flexibility provisions in prospective renewable energy mandates and the geographical incidence of impacts. Using an integrated model of electric sector investments and operations with detailed spatial and temporal resolutions, the analysis demonstrates how renewable mandate trade formulations for electricity and renewable energy certificates can materially impact power sector outcomes like capacity planning decisions, compliance costs, CO2 emissions, and the regional distribution of renewable development. There are substantial welfare gains, up to $84 billion in present value terms through 2050, from inter-regional electricity and permit trade (and costs of market fragmentation), but the degree and direction of impact depend on region-specific considerations. Allowing permit trade encourages greater deployment of wind and solar in regions with favorable investment environments and resources, but renewable capacity additions are appreciable in all regions since diminishing marginal returns and transmission constraints limit the benefits of overdevelopment in any single region. Model results suggest that regions will likely find it beneficial to generate at least half of their renewable mandate compliance obligations through in-state resources and that most of the economic benefits from inter-regional REC exchange can be captured with a relatively modest amount of trading flexibility. Trade flexibility is shown to have minimal impacts on CO2 emissions leakage nationally.

[1]  K. Palmer,et al.  COST-EFFECTIVENESS OF RENEWABLE ELECTRICITY POLICIES , 2005 .

[2]  James Merrick,et al.  Simulating Annual Variation in Load, Wind, and Solar by Representative Hour Selection , 2018, The Energy Journal.

[3]  Harrison Fell,et al.  The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions , 2018 .

[4]  Harrison Fell,et al.  Leakage in regional environmental policy: The case of the regional greenhouse gas initiative , 2018 .

[5]  Richard G. Newell,et al.  Environmental and Technology Policies for Climate Mitigation , 2008 .

[6]  Multiple pollutants, co-benefits, and suboptimal environmental policies , 2018 .

[7]  J. Weyant,et al.  Overview of EMF 24 Policy Scenarios , 2014 .

[8]  L. Stokes,et al.  Renewable energy policy design and framing influence public support in the United States , 2017, Nature Energy.

[9]  J. Weyant.  A Critique of the Stern Review's Mitigation Cost Analyses and Integrated Assessment , 2008, Review of Environmental Economics and Policy.

[10]  Jay Apt,et al.  Regional variations in the health, environmental, and climate benefits of wind and solar generation , 2013, Proceedings of the National Academy of Sciences.

[11]  G. Gowrisankaran,et al.  Intermittency and the Value of Renewable Energy , 2011, Journal of Political Economy.

[12]  Brian F. Snyder,et al.  Funding Renewable Energy: An Analysis of Renewable Portfolio Standards , 2015 .

[13]  John P. Weyant,et al.  The role of technology for achieving climate policy objectives: overview of the EMF 27 study on global technology and climate policy strategies , 2014, Climatic Change.

[14]  Jan Abrell,et al.  Cross-Country Electricity Trade, Renewable Energy and European Transmission Infrastructure Policy , 2016 .

[15]  P. Joskow.  Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies , 2011 .

[16]  Christoph Böhringer,et al.  Economic Impacts of Renewable Energy Promotion in Germany , 2017 .

[17]  Nicholas Z. Muller,et al.  The Impact of Trading on the Costs and Benefits of the Acid Rain Program , 2015 .

[18]  Joshua Linn,et al.  Renewable electricity policies, heterogeneity, and cost effectiveness , 2013 .

[19]  P. Samuelson.  The Transfer Problem and Transport Costs, II: Analysis of Effects of Trade Impediments , 1954 .

[20]  J. Bistline.  Economic and technical challenges of flexible operations under large-scale variable renewable deployment , 2017 .

[21]  Trieu Mai,et al.  The role of input assumptions and model structures in projections of variable renewable energy: A multi-model perspective of the U.S. electricity system , 2018, Energy Economics.

[22]  Social cost of carbon pricing of power sector CO 2 : accounting for leakage and other social implications from subnational policies , 2018 .

[23]  W. Griffin.  Renewable Portfolio Standards and the Dormant Commerce Clause: The Case for In-Region Location Requirements , 2014 .

[24]  John P. Weyant,et al.  Overview of EMF 22 U.S. transition scenarios , 2009 .

[25]  Emissions reductions or green booms? General equilibrium effects of a renewable portfolio standard , 2018, Journal of Environmental Economics and Management.

[26]  Lion Hirth,et al.  The Optimal Share of Variable Renewables: How the Variability of Wind and Solar Power affects their Welfare-optimal Deployment , 2012 .

[27]  Enzo Sauma,et al.  The economic effects of interregional trading of renewable energy certificates in the WECC. , 2016 .

[28]  Haitao Yin,et al.  Do State Renewable Portfolio Standards Promote In-State Renewable Generation? , 2010 .

[29]  Fredric C. Menz,et al.  The effectiveness of different policy regimes for promoting wind power: Experiences from the states , 2006 .

[30]  Lion Hirth.  The Market Value of Variable Renewables The Effect of Solar and Wind Power Variability on their Relative Price , 2013 .

[31]  Avik Sinha.  Inequality of renewable energy generation across OECD countries: A note , 2017 .

[32]  Claudia Hitaj,et al.  Wind power development in the United States , 2013 .

[33]  Joseph Cullen.  Measuring the Environmental Benefits of Wind-Generated Electricity , 2013 .

[34]  Spatial Dependence in State Renewable Policy: Effects of Renewable Portfolio Standards on Renewable Generation within NERC Regions , 2017 .

[35]  R. Wiser,et al.  Impacts of Variable Renewable Energy on Bulk Power System Assets, Pricing, and Costs - eScholarship , 2017 .

[36]  T. Mai,et al.  Variable Renewable Energy in Long-Term Planning Models: A Multi-Model Perspective , 2017 .

[37]  Martin Drechsler,et al.  Efficient and equitable spatial allocation of renewable power plants at the country scale , 2017, Nature Energy.

[38]  Lion Hirth.  The Market Value of Variable Renewables , 2012 .

[39]  J. Bistline,et al.  The costs and value of renewable portfolio standards in meeting decarbonization goals , 2018, Energy Economics.

[40]  Lessons Learned from Three Decades of Experience with Cap and Trade , 2017, Review of Environmental Economics and Policy.

[41]  Lori Bird,et al.  Status and Trends in U.S. Compliance and Voluntary Renewable Energy Certificate Markets (2010 Data) , 2011 .

[42]  Alan S. Manne,et al.  The Kyoto Protocol: A Cost-Effective Strategy for Meeting Environmental Objectives? , 1999 .