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Indirect cost of renewable energy: Insights from dispatching

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  • Li, Jianglong
  • Ho, Mun Sing

Abstract

The rapidly falling costs of renewable energy has made them the focus of efforts in making a low-carbon transition. However, when cheap large-scale energy storage is not available, the variability of renewables implies that fossil-based technologies have to ramp up-and-down frequently to provide flexibility for matching electricity demand and supply. Here we provide a study on the indirect cost of renewable energy due to thermal efficiency loss of coal plants with such ramping requirements. Using monthly panel data for China, we show that higher renewable share is associated with fewer operating hours of coal-fired units (COHOUR). We use an instrumental variable depending on natural river flows to identify the causal effect of reduced COHOURs in raising the heat rate of coal-fired units. Specifically, a 1 percentage point increase in the share of renewables leads to a 6.4 h reduction per month, and a reduction of one COHOUR results in a 0.09 gce/kWh increase of gross heat rate (+0.03%). We estimate that the thermal efficiency loss indicates 4.77 billion US dollars of indirect cost of renewables in 2019, or 9.44 billion if we include the social cost of carbon emissions. These results indicate that we should consider the indirect impacts of renewables on total coal use and the importance of increasing flexibility of the system.

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  • Li, Jianglong & Ho, Mun Sing, 2022. "Indirect cost of renewable energy: Insights from dispatching," Energy Economics, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:eneeco:v:105:y:2022:i:c:s0140988321006198
    DOI: 10.1016/j.eneco.2021.105778
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    2. Lisi, Francesco & Grossi, Luigi & Quaglia, Federico, 2023. "Evaluation of Cost-at-Risk related to the procurement of resources in the ancillary services market. The case of the Italian electricity market," Energy Economics, Elsevier, vol. 121(C).
    3. Wei Wei & Ling He & Xiaofan Li & Qi Cui & Hao Chen, 2022. "The Effectiveness and Trade-Offs of Renewable Energy Policies in Achieving the Dual Decarbonization Goals in China: A Dynamic Computable General Equilibrium Analysis," IJERPH, MDPI, vol. 19(11), pages 1-18, May.
    4. Nan, Shijing & Huo, Yuchen & Lee, Chien-Chiang, 2023. "Assessing the role of globalization on renewable energy consumption: New evidence from a spatial econometric analysis," Renewable Energy, Elsevier, vol. 215(C).
    5. Wang, Wei & Xiao, Weiwei & Bai, Caiquan, 2022. "Can renewable energy technology innovation alleviate energy poverty? Perspective from the marketization level," Technology in Society, Elsevier, vol. 68(C).
    6. Crowley-Vigneau, Anne & Kalyuzhnova, Yelena & Ketenci, Natalya, 2023. "What motivates the ‘green’ transition: Russian and European perspectives," Resources Policy, Elsevier, vol. 81(C).
    7. Lifang Guo & Hewu Kuang & Zehua Ni, 2023. "A step towards green economic policy framework: role of renewable energy and climate risk for green economic recovery," Economic Change and Restructuring, Springer, vol. 56(5), pages 3095-3115, October.

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