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How much is enough? Optimal support payments in a renewable-rich power system

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  • Rintamäki, Tuomas
  • Siddiqui, Afzal S.
  • Salo, Ahti

Abstract

The large-scale deployment of intermittent renewable energy sources may cause substantial power imbalance. Together with the transmission grid congestion caused by the remoteness of these sources from load centers, this creates a need for fast-adjusting conventional capacity such as gas-fired plants. However, these plants have become unprofitable because of lower power prices due to the zero marginal costs of renewables. Consequently, policymakers are proposing new measures for mitigating balancing costs and securing supply. In this paper, we take the perspective of the regulator to assess the effectiveness of support payments to flexible generators. Using data on the German power system, we implement a bi-level programming model, which shows that such payments for gas-fired plants in southern Germany reduce balancing costs and can be used as part of policy to integrate renewable energy.

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  • Rintamäki, Tuomas & Siddiqui, Afzal S. & Salo, Ahti, 2016. "How much is enough? Optimal support payments in a renewable-rich power system," Energy, Elsevier, vol. 117(P1), pages 300-313.
    • Handle: RePEc:eee:energy:v:117:y:2016:i:p1:p:300-313
    DOI: 10.1016/j.energy.2016.10.058
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    5. Makpal Assembayeva & Jonas Egerer & Roman Mendelevitch & Nurkhat Zhakiyev, 2017. "A Spatial Electricity Market Model for the Power System of Kazakhstan," Discussion Papers of DIW Berlin 1659, DIW Berlin, German Institute for Economic Research.
    6. Moritz Schillinger & Hannes Weigt & Philipp Emanuel Hirsch, 2020. "Environmental flows or economic woes—Hydropower under global energy market changes," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-19, August.
    7. Višković, Verena & Chen, Yihsu & Siddiqui, Afzal S., 2017. "Implications of the EU Emissions Trading System for the South-East Europe Regional Electricity Market," Energy Economics, Elsevier, vol. 65(C), pages 251-261.
    8. Yang, Weijia & Norrlund, Per & Chung, Chi Yung & Yang, Jiandong & Lundin, Urban, 2018. "Eigen-analysis of hydraulic-mechanical-electrical coupling mechanism for small signal stability of hydropower plant," Renewable Energy, Elsevier, vol. 115(C), pages 1014-1025.

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