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The Economics of Wind Power: Destabilizing an Electricity Grid with Renewable Power

Author

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  • Ryan Prescott
  • G. Cornelis van Kooten

Abstract

In this paper, we examine the impact policy choices, including a carbon tax, on the optimal allocation of power across different generation sources and on future investments in generating facilities. The focus in on the Alberta power grid as it is heavily dependent on fossil fuels and has only limited ties to other power grids, although the model could be extended to a larger and even multiple grids. Results indicate that, as wind penetrates the extant generating mix characterizing the grid, cost savings and emission reductions do not decline linearly, but at a decreasing rate. However, if flexibility is allowed then, as the carbon tax increases to $40 per tCO2 or above, existing coal plants start to be replaced by newly constructed wind farms and natural gas plants. If coal can be completely eliminated from the energy mix and replaced by natural gas and wind, substantial savings of 31.03 Mt CO2 (58% of total emissions) can result. However, this occurs for carbon taxes of over $170/tCO2. The associated high capital costs of new generating facilities may thus not be an ideal use of funds for addressing climate change.

Suggested Citation

  • Ryan Prescott & G. Cornelis van Kooten, 2007. "The Economics of Wind Power: Destabilizing an Electricity Grid with Renewable Power," Working Papers 2007-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    • Handle: RePEc:rep:wpaper:2007-04
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    File URL: https://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2007-04.pdf
    File Function: Final version, 2007
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    References listed on IDEAS

    as
    1. DeCarolis, Joseph F. & Keith, David W., 2006. "The economics of large-scale wind power in a carbon constrained world," Energy Policy, Elsevier, vol. 34(4), pages 395-410, March.
    2. DeCarolis, Joseph F. & Keith, David W., 2005. "The Costs of Wind's Variability: Is There a Threshold?," The Electricity Journal, Elsevier, vol. 18(1), pages 69-77.
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    Cited by:

    1. van Kooten, G. Cornelis, 2012. "Natural Gas, Wind and Nuclear Options for Generating Electricity in a Carbon Constrained World," Working Papers 122353, University of Victoria, Resource Economics and Policy.
    2. G. Cornelis van Kooten, 2016. "Wind versus Nuclear Options for Generating Electricity in a Carbon Constrained World: Proceedings of the CSME International Congress 2016," Working Papers 2016-06, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.

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    More about this item

    Keywords

    Economics of wind power; grid system modeling; operations research; carbon taxes and coal power plants;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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