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Electricity storage and transmission: Complements or substitutes?

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  • Neetzow, Paul
  • Pechan, Anna
  • Eisenack, Klaus

Abstract

Electricity from renewable sources often cannot be generated when and where it is needed. To deal with these temporal and spatial discrepancies, one frequently proposed approach is to expand storage capacities and transmission grids. It is often argued that the two technologies substitute each other, such that deploying one reduces the need for the other. Using a theoretical model, we show that storage capacities and transmission grids can also be complements if electricity system costs are minimized. We present the conditions that determine the kind of interdependence at specific storage locations: the characteristics of transmission congestion, i.e., during peak or off-peak and uni- or bidirectional as well as the alignment of marginal generation costs between adjacent regions. By applying our theoretical insights to Italian power system data, we obtain empirical evidence that storage and transmission can act as either substitutes or complements. Planners of long-lasting and costly infrastructure can use the results to avoid design errors such as a misplacement of storage within the system.

Suggested Citation

  • Neetzow, Paul & Pechan, Anna & Eisenack, Klaus, 2018. "Electricity storage and transmission: Complements or substitutes?," Energy Economics, Elsevier, vol. 76(C), pages 367-377.
    • Handle: RePEc:eee:eneeco:v:76:y:2018:i:c:p:367-377
    DOI: 10.1016/j.eneco.2018.10.021
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    More about this item

    Keywords

    Power grid; Energy system; Infrastructure planning; Energy transition;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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