IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v13y2021i24p13510-d696552.html
   My bibliography  Save this article

Steering Renewable Energy Investments in Favor of Energy System Reliability: A Call for a Hybrid Model

Author

Listed:
  • Mariia Kozlova

    (School of Business and Management, LUT University, FI-53851 Lappeenranta, Finland)

  • Alena Lohrmann

    (School of Business and Management, LUT University, FI-53851 Lappeenranta, Finland)

Abstract

The global increase in electricity supply volatility due to the growing share of intermittent renewable energy sources together with recent extreme weather events draws attention to energy system reliability issues and the role of renewable energy sources within these systems. Renewable energy deployment strategies have already become a key element in debates on future global energy systems. At the same time, more extensive use of renewable energy sources implies a higher dependence on intermittent power, which puts the reliability of the electricity system at risk. Policymakers are introducing measures to increase the reliability of energy systems. Paradoxically, support for renewable energy and analyses of energy system reliability have been dealt with by two different and rarely overlapping research approaches. As a result, renewable energy promotion has often been designed without accounting for system reliability. To our knowledge, a model that captures those investment incentives and allows for tuning such financial support does not exist. This paper introduces a hybrid model that can potentially steer renewable energy investments in favor of energy system reliability. We demonstrate the idea of reliability-based support for renewable energy sources in action using a stylized case. Depending on the complementarity of different renewable energy power outputs available in the system, such reliability-based support can substantially reduce the necessity for greater backup capacity, can cut the overall costs of the energy system, and can reduce its environmental footprint.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:24:p:13510-:d:696552
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/13/24/13510/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/13/24/13510/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jasmine Ramsebner & Reinhard Haas & Amela Ajanovic & Martin Wietschel, 2021. "The sector coupling concept: A critical review," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 10(4), July.
    2. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    3. 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.
    4. Rios, Daniel & Blanco, Gerardo & Olsina, Fernando, 2019. "Integrating Real Options Analysis with long-term electricity market models," Energy Economics, Elsevier, vol. 80(C), pages 188-205.
    5. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 48(C), pages 76-91.
    6. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & Vries, Laurens J. De, 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48, pages 76-91.
    7. Mastropietro, Paolo & Herrero, Ignacio & Rodilla, Pablo & Batlle, Carlos, 2016. "A model-based analysis on the impact of explicit penalty schemes in capacity mechanisms," Applied Energy, Elsevier, vol. 168(C), pages 406-417.
    8. Mastropietro, Paolo & Rodilla, Pablo & Batlle, Carlos, 2019. "De-rating of wind and solar resources in capacity mechanisms: A review of international experiences," Renewable and Sustainable Energy Reviews, Elsevier, vol. 112(C), pages 253-262.
    9. Collins, Seán & Deane, John Paul & Poncelet, Kris & Panos, Evangelos & Pietzcker, Robert C. & Delarue, Erik & Ó Gallachóir, Brian Pádraig, 2017. "Integrating short term variations of the power system into integrated energy system models: A methodological review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 839-856.
    10. Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & de Vries, Laurens J., 2016. "The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 39(C), pages 13-28.
    11. Fleten, Stein-Erik & Linnerud, Kristin & Molnár, Peter & Tandberg Nygaard, Maria, 2016. "Green electricity investment timing in practice: Real options or net present value?," Energy, Elsevier, vol. 116(P1), pages 498-506.
    12. Fleten, Stein-Erik & Näsäkkälä, Erkka, 2010. "Gas-fired power plants: Investment timing, operating flexibility and CO2 capture," Energy Economics, Elsevier, vol. 32(4), pages 805-816, July.
    13. Peter, Jakob & Wagner, Johannes, 2018. "Optimal Allocation of Variable Renewable Energy Considering Contributions to Security of Supply," EWI Working Papers 2018-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    14. Fridgen, Gilbert & Keller, Robert & Körner, Marc-Fabian & Schöpf, Michael, 2020. "A holistic view on sector coupling," Energy Policy, Elsevier, vol. 147(C).
    15. Kitzing, Lena & Juul, Nina & Drud, Michael & Boomsma, Trine Krogh, 2017. "A real options approach to analyse wind energy investments under different support schemes," Applied Energy, Elsevier, vol. 188(C), pages 83-96.
    16. Rodilla, P. & Batlle, C., 2012. "Security of electricity supply at the generation level: Problem analysis," Energy Policy, Elsevier, vol. 40(C), pages 177-185.
    17. A. T. D. Perera & Vahid M. Nik & Deliang Chen & Jean-Louis Scartezzini & Tianzhen Hong, 2020. "Quantifying the impacts of climate change and extreme climate events on energy systems," Nature Energy, Nature, vol. 5(2), pages 150-159, February.
    18. Orvika Rosnes, 2014. "Subsidies for renewable energy in inflexible power markets," Journal of Regulatory Economics, Springer, vol. 46(3), pages 318-343, December.
    19. Söder, Lennart & Tómasson, Egill & Estanqueiro, Ana & Flynn, Damian & Hodge, Bri-Mathias & Kiviluoma, Juha & Korpås, Magnus & Neau, Emmanuel & Couto, António & Pudjianto, Danny & Strbac, Goran & Burke, 2020. "Review of wind generation within adequacy calculations and capacity markets for different power systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 119(C).
    20. Brown, T. & Schlachtberger, D. & Kies, A. & Schramm, S. & Greiner, M., 2018. "Synergies of sector coupling and transmission reinforcement in a cost-optimised, highly renewable European energy system," Energy, Elsevier, vol. 160(C), pages 720-739.
    21. Lund, Peter D. & Lindgren, Juuso & Mikkola, Jani & Salpakari, Jyri, 2015. "Review of energy system flexibility measures to enable high levels of variable renewable electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 45(C), pages 785-807.
    22. Menegaki, Angeliki, 2008. "Valuation for renewable energy: A comparative review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(9), pages 2422-2437, December.
    23. Lohrmann, Alena & Child, Michael & Breyer, Christian, 2021. "Assessment of the water footprint for the European power sector during the transition towards a 100% renewable energy system," Energy, Elsevier, vol. 233(C).
    24. Boomsma, Trine Krogh & Linnerud, Kristin, 2015. "Market and policy risk under different renewable electricity support schemes," Energy, Elsevier, vol. 89(C), pages 435-448.
    25. Zhou, P. & Jin, R.Y. & Fan, L.W., 2016. "Reliability and economic evaluation of power system with renewables: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 537-547.
    26. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    27. Linnerud, Kristin & Andersson, Ane Marte & Fleten, Stein-Erik, 2014. "Investment timing under uncertain renewable energy policy: An empirical study of small hydropower projects," Energy, Elsevier, vol. 78(C), pages 154-164.
    28. Huntington, Samuel C. & Rodilla, Pablo & Herrero, Ignacio & Batlle, Carlos, 2017. "Revisiting support policies for RES-E adulthood: Towards market compatible schemes," Energy Policy, Elsevier, vol. 104(C), pages 474-483.
    29. Heylen, Evelyn & Deconinck, Geert & Van Hertem, Dirk, 2018. "Review and classification of reliability indicators for power systems with a high share of renewable energy sources," Renewable and Sustainable Energy Reviews, Elsevier, vol. 97(C), pages 554-568.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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).
    2. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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).
    2. Kozlova, M. & Overland, I., 2022. "Combining capacity mechanisms and renewable energy support: A review of the international experience," Renewable and Sustainable Energy Reviews, Elsevier, vol. 155(C).
    3. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    4. Khan, Agha Salman M. & Verzijlbergh, Remco A. & Sakinci, Ozgur Can & De Vries, Laurens J., 2018. "How do demand response and electrical energy storage affect (the need for) a capacity market?," Applied Energy, Elsevier, vol. 214(C), pages 39-62.
    5. Bhagwat, Pradyumna C. & Marcheselli, Anna & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "An analysis of a forward capacity market with long-term contracts," Energy Policy, Elsevier, vol. 111(C), pages 255-267.
    6. Haugen, Mari & Blaisdell-Pijuan, Paris L. & Botterud, Audun & Levin, Todd & Zhou, Zhi & Belsnes, Michael & Korpås, Magnus & Somani, Abhishek, 2024. "Power market models for the clean energy transition: State of the art and future research needs," Applied Energy, Elsevier, vol. 357(C).
    7. Backe, Stian & Zwickl-Bernhard, Sebastian & Schwabeneder, Daniel & Auer, Hans & Korpås, Magnus & Tomasgard, Asgeir, 2022. "Impact of energy communities on the European electricity and heating system decarbonization pathway: Comparing local and global flexibility responses," Applied Energy, Elsevier, vol. 323(C).
    8. Brito-Pereira, Paulo & Rodilla, Pablo & Mastropietro, Paolo & Batlle, Carlos, 2022. "Self-fulfilling or self-destroying prophecy? The relevance of de-rating factors in modern capacity mechanisms," Applied Energy, Elsevier, vol. 314(C).
    9. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    10. Kraan, Oscar & Kramer, Gert Jan & Nikolic, Igor & Chappin, Emile & Koning, Vinzenz, 2019. "Why fully liberalised electricity markets will fail to meet deep decarbonisation targets even with strong carbon pricing," Energy Policy, Elsevier, vol. 131(C), pages 99-110.
    11. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2019. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Energy Economics, Elsevier, vol. 80(C), pages 1059-1078.
    12. Perica Ilak & Lin Herenčić & Ivan Rajšl & Sara Raos & Željko Tomšić, 2021. "Equilibrium Pricing with Duality-Based Method: Approach for Market-Oriented Capacity Remuneration Mechanism," Energies, MDPI, vol. 14(3), pages 1-19, January.
    13. Hustveit, Magne & Frogner, Jens Sveen & Fleten, Stein-Erik, 2017. "Tradable green certificates for renewable support: The role of expectations and uncertainty," Energy, Elsevier, vol. 141(C), pages 1717-1727.
    14. Ma, Yiju & Chapman, Archie C. & Verbič, Gregor, 2022. "Valuation of compound real options for co-investment in residential battery systems," Applied Energy, Elsevier, vol. 318(C).
    15. Michi Nishihara, 2022. "Corporate sustainability, investment, and capital structure," Discussion Papers in Economics and Business 22-05, Osaka University, Graduate School of Economics.
    16. Simshauser, Paul, 2020. "Merchant renewables and the valuation of peaking plant in energy-only markets," Energy Economics, Elsevier, vol. 91(C).
    17. Bhagwat, Pradyumna C. & Marcheselli, Anna & Richstein, Jörn C. & Chappin, Emile J. L. & Vries, Laurens J. De, 2017. "An analysis of a forward capacity market with long-term contracts," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111, pages 255-267.
    18. Neuhoff, Karsten & Richstein, Jörn C. & Kröger, Mats, 2023. "Reacting to changing paradigms: How and why to reform electricity markets," Energy Policy, Elsevier, vol. 180(C).
    19. Àlex Alonso-Travesset & Diederik Coppitters & Helena Martín & Jordi de la Hoz, 2023. "Economic and Regulatory Uncertainty in Renewable Energy System Design: A Review," Energies, MDPI, vol. 16(2), pages 1-30, January.
    20. Ganhammar, Kajsa, 2021. "The effect of regulatory uncertainty in green certificate markets: Evidence from the Swedish-Norwegian market," Energy Policy, Elsevier, vol. 158(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:13:y:2021:i:24:p:13510-:d:696552. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.