IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v76y2015icp43-56.html
   My bibliography  Save this article

Using renewables to hedge against future electricity industry uncertainties—An Australian case study

Author

Listed:
  • Vithayasrichareon, Peerapat
  • Riesz, Jenny
  • MacGill, Iain F.

Abstract

A generation portfolio modelling was employed to assess the expected costs, cost risk and emissions of different generation portfolios in the Australian National Electricity Market (NEM) under highly uncertain gas prices, carbon pricing policy and electricity demand. Outcomes were modelled for 396 possible generation portfolios, each with 10,000 simulations of possible fuel and carbon prices and electricity demands. In 2030, the lowest expected cost generation portfolio includes 60% renewable energy. Increasing the renewable proportion to 75% slightly increased expected cost (by $0.2/MWh), but significantly decreased the standard deviation of cost (representing the cost risk). Increasing the renewable proportion from the present 15% to 75% by 2030 is found to decrease expected wholesale electricity costs by $17/MWh. Fossil-fuel intensive portfolios have substantial cost risk associated with high uncertainty in future gas and carbon prices. Renewables can effectively mitigate cost risk associated with gas and carbon price uncertainty. This is found to be robust to a wide range of carbon pricing assumptions. This modelling suggests that policy mechanisms to promote an increase in renewable generation towards a level of 75% by 2030 would minimise costs to consumers, and mitigate the risk of extreme electricity prices due to uncertain gas and carbon prices.

Suggested Citation

  • Vithayasrichareon, Peerapat & Riesz, Jenny & MacGill, Iain F., 2015. "Using renewables to hedge against future electricity industry uncertainties—An Australian case study," Energy Policy, Elsevier, vol. 76(C), pages 43-56.
  • Handle: RePEc:eee:enepol:v:76:y:2015:i:c:p:43-56
    DOI: 10.1016/j.enpol.2014.10.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421514005606
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.enpol.2014.10.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Huang, Yun-Hsun & Wu, Jung-Hua, 2008. "A portfolio risk analysis on electricity supply planning," Energy Policy, Elsevier, vol. 36(2), pages 627-641, February.
    2. Richard Green, 2008. "Carbon Tax or Carbon Permits: The Impact on Generators Risks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-90.
    3. Fabien A. Roques & William J. Nuttall & David M. Newbery & Richard de Neufville & Stephen Connors, 2006. "Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-24.
    4. Losekann, Luciano & Marrero, Gustavo A. & Ramos-Real, Francisco J. & de Almeida, Edmar Luiz Fagundes, 2013. "Efficient power generating portfolio in Brazil: Conciliating cost, emissions and risk," Energy Policy, Elsevier, vol. 62(C), pages 301-314.
    5. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
    6. Connolly, D. & Lund, H. & Mathiesen, B.V. & Leahy, M., 2010. "A review of computer tools for analysing the integration of renewable energy into various energy systems," Applied Energy, Elsevier, vol. 87(4), pages 1059-1082, April.
    7. Roques, F.A. & Nuttall, W.J. & Newbery, D.M., 2006. "Using Probabilistic Analysis to Value Power Generation Investments Under Uncertainty," Cambridge Working Papers in Economics 0650, Faculty of Economics, University of Cambridge.
    8. Molyneaux, Lynette & Froome, Craig & Wagner, Liam & Foster, John, 2013. "Australian power: Can renewable technologies change the dominant industry view?," Renewable Energy, Elsevier, vol. 60(C), pages 215-221.
    9. Bhattacharya, Anindya & Kojima, Satoshi, 2012. "Power sector investment risk and renewable energy: A Japanese case study using portfolio risk optimization method," Energy Policy, Elsevier, vol. 40(C), pages 69-80.
    10. Muñoz, José Ignacio & Sánchez de la Nieta, Agustín A. & Contreras, Javier & Bernal-Agustín, José L., 2009. "Optimal investment portfolio in renewable energy: The Spanish case," Energy Policy, Elsevier, vol. 37(12), pages 5273-5284, December.
    11. Lund, H., 2006. "Large-scale integration of optimal combinations of PV, wind and wave power into the electricity supply," Renewable Energy, Elsevier, vol. 31(4), pages 503-515.
    12. Vithayasrichareon, Peerapat & MacGill, Iain F., 2013. "Assessing the value of wind generation in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 53(C), pages 400-412.
    13. Nelson, Tim & Nelson, James & Ariyaratnam, Jude & Camroux, Simon, 2013. "An analysis of Australia's large scale renewable energy target: Restoring market confidence," Energy Policy, Elsevier, vol. 62(C), pages 386-400.
    14. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    15. Elliston, Ben & MacGill, Iain & Diesendorf, Mark, 2013. "Least cost 100% renewable electricity scenarios in the Australian National Electricity Market," Energy Policy, Elsevier, vol. 59(C), pages 270-282.
    16. Foley, A.M. & Ó Gallachóir, B.P. & Hur, J. & Baldick, R. & McKeogh, E.J., 2010. "A strategic review of electricity systems models," Energy, Elsevier, vol. 35(12), pages 4522-4530.
    17. Connolly, D. & Lund, H. & Mathiesen, B.V. & Leahy, M., 2011. "The first step towards a 100% renewable energy-system for Ireland," Applied Energy, Elsevier, vol. 88(2), pages 502-507, February.
    18. Krajacic, Goran & Duic, Neven & Carvalho, Maria da Graça, 2011. "How to achieve a 100% RES electricity supply for Portugal?," Applied Energy, Elsevier, vol. 88(2), pages 508-517, February.
    19. Vithayasrichareon, Peerapat & MacGill, Iain F., 2012. "A Monte Carlo based decision-support tool for assessing generation portfolios in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 41(C), pages 374-392.
    20. Lynette Molyneaux & Craig Froome & Liam Wagner & John Foster, 2012. "Australian Power: Can renewable technologies change the dominant industry view?," Energy Economics and Management Group Working Papers 13-2012, School of Economics, University of Queensland, Australia.
    21. Denholm, Paul & Margolis, Robert M., 2007. "Evaluating the limits of solar photovoltaics (PV) in traditional electric power systems," Energy Policy, Elsevier, vol. 35(5), pages 2852-2861, May.
    22. Lund, H. & Mathiesen, B.V., 2009. "Energy system analysis of 100% renewable energy systems—The case of Denmark in years 2030 and 2050," Energy, Elsevier, vol. 34(5), pages 524-531.
    23. Mason, I.G. & Page, S.C. & Williamson, A.G., 2010. "A 100% renewable electricity generation system for New Zealand utilising hydro, wind, geothermal and biomass resources," Energy Policy, Elsevier, vol. 38(8), pages 3973-3984, August.
    24. Ćosić, Boris & Krajačić, Goran & Duić, Neven, 2012. "A 100% renewable energy system in the year 2050: The case of Macedonia," Energy, Elsevier, vol. 48(1), pages 80-87.
    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. Wei, Xinyang & Tong, Qing & Magill, Iain & Vithayasrichareon, Peerapat & Betz, Regina, 2020. "Evaluation of potential co-benefits of air pollution control and climate mitigation policies for China's electricity sector," Energy Economics, Elsevier, vol. 92(C).
    2. Jeppesen, M. & Brear, M.J. & Chattopadhyay, D. & Manzie, C. & Dargaville, R. & Alpcan, T., 2016. "Least cost, utility scale abatement from Australia's NEM (National Electricity Market). Part 1: Problem formulation and modelling," Energy, Elsevier, vol. 101(C), pages 606-620.
    3. Vithayasrichareon, Peerapat & Riesz, Jenny & MacGill, Iain, 2017. "Operational flexibility of future generation portfolios with high renewables," Applied Energy, Elsevier, vol. 206(C), pages 32-41.
    4. Diaz-Rainey, Ivan & Sise, Greg, 2018. "Green Energy Finance in Australia and New Zealand," ADBI Working Papers 840, Asian Development Bank Institute.
    5. Inzunza, Andrés & Muñoz, Francisco D. & Moreno, Rodrigo, 2021. "Measuring the effects of environmental policies on electricity markets risk," Energy Economics, Elsevier, vol. 102(C).
    6. Riesz, Jenny & Elliston, Ben, 2016. "Research and deployment priorities for renewable technologies: Quantifying the importance of various renewable technologies for low cost, high renewable electricity systems in an Australian case study," Energy Policy, Elsevier, vol. 98(C), pages 298-308.
    7. Henao, Felipe & Rodriguez, Yeny & Viteri, Juan Pablo & Dyner, Isaac, 2019. "Optimising the insertion of renewables in the Colombian power sector," Renewable Energy, Elsevier, vol. 132(C), pages 81-92.
    8. Tietjen, Oliver & Pahle, Michael & Fuss, Sabine, 2016. "Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets," Energy Economics, Elsevier, vol. 58(C), pages 174-185.
    9. Riesz, Jenny & Sotiriadis, Claire & Ambach, Daisy & Donovan, Stuart, 2016. "Quantifying the costs of a rapid transition to electric vehicles," Applied Energy, Elsevier, vol. 180(C), pages 287-300.

    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. Elliston, Ben & MacGill, Iain & Diesendorf, Mark, 2014. "Comparing least cost scenarios for 100% renewable electricity with low emission fossil fuel scenarios in the Australian National Electricity Market," Renewable Energy, Elsevier, vol. 66(C), pages 196-204.
    2. Ma, Weiwu & Xue, Xinpei & Liu, Gang, 2018. "Techno-economic evaluation for hybrid renewable energy system: Application and merits," Energy, Elsevier, vol. 159(C), pages 385-409.
    3. Vithayasrichareon, Peerapat & MacGill, Iain F., 2013. "Assessing the value of wind generation in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 53(C), pages 400-412.
    4. Pérez Odeh, Rodrigo & Watts, David & Flores, Yarela, 2018. "Planning in a changing environment: Applications of portfolio optimisation to deal with risk in the electricity sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 3808-3823.
    5. Olav H. Hohmeyer & Sönke Bohm, 2015. "Trends toward 100% renewable electricity supply in Germany and Europe: a paradigm shift in energy policies," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 4(1), pages 74-97, January.
    6. Fernandes, Liliana & Ferreira, Paula, 2014. "Renewable energy scenarios in the Portuguese electricity system," Energy, Elsevier, vol. 69(C), pages 51-57.
    7. Ioannou, Anastasia & Angus, Andrew & Brennan, Feargal, 2017. "Risk-based methods for sustainable energy system planning: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 602-615.
    8. Forouli, Aikaterini & Gkonis, Nikolaos & Nikas, Alexandros & Siskos, Eleftherios & Doukas, Haris & Tourkolias, Christos, 2019. "Energy efficiency promotion in Greece in light of risk: Evaluating policies as portfolio assets," Energy, Elsevier, vol. 170(C), pages 818-831.
    9. Hansen, Kenneth & Breyer, Christian & Lund, Henrik, 2019. "Status and perspectives on 100% renewable energy systems," Energy, Elsevier, vol. 175(C), pages 471-480.
    10. Wierzbowski, Michal & Filipiak, Izabela & Lyzwa, Wojciech, 2017. "Polish energy policy 2050 – An instrument to develop a diversified and sustainable electricity generation mix in coal-based energy system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 51-70.
    11. Diesendorf, Mark & Elliston, Ben, 2018. "The feasibility of 100% renewable electricity systems: A response to critics," Renewable and Sustainable Energy Reviews, Elsevier, vol. 93(C), pages 318-330.
    12. Tietjen, Oliver & Pahle, Michael & Fuss, Sabine, 2016. "Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets," Energy Economics, Elsevier, vol. 58(C), pages 174-185.
    13. Riesz, Jenny & Elliston, Ben, 2016. "Research and deployment priorities for renewable technologies: Quantifying the importance of various renewable technologies for low cost, high renewable electricity systems in an Australian case study," Energy Policy, Elsevier, vol. 98(C), pages 298-308.
    14. Md. Nasimul Islam Maruf, 2019. "Sector Coupling in the North Sea Region—A Review on the Energy System Modelling Perspective," Energies, MDPI, vol. 12(22), pages 1-35, November.
    15. Zakeri, Behnam & Syri, Sanna & Rinne, Samuli, 2015. "Higher renewable energy integration into the existing energy system of Finland – Is there any maximum limit?," Energy, Elsevier, vol. 92(P3), pages 244-259.
    16. Cochran, Jaquelin & Mai, Trieu & Bazilian, Morgan, 2014. "Meta-analysis of high penetration renewable energy scenarios," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 246-253.
    17. Kiwan, Suhil & Al-Gharibeh, Elyasa, 2020. "Jordan toward a 100% renewable electricity system," Renewable Energy, Elsevier, vol. 147(P1), pages 423-436.
    18. Wu, Yunyang & Reedman, Luke J. & Barrett, Mark A. & Spataru, Catalina, 2018. "Comparison of CST with different hours of storage in the Australian National Electricity Market," Renewable Energy, Elsevier, vol. 122(C), pages 487-496.
    19. Caballero, F. & Sauma, E. & Yanine, F., 2013. "Business optimal design of a grid-connected hybrid PV (photovoltaic)-wind energy system without energy storage for an Easter Island's block," Energy, Elsevier, vol. 61(C), pages 248-261.
    20. Heard, B.P. & Brook, B.W. & Wigley, T.M.L. & Bradshaw, C.J.A., 2017. "Burden of proof: A comprehensive review of the feasibility of 100% renewable-electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 1122-1133.

    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:eee:enepol:v:76:y:2015:i:c:p:43-56. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    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.