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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.

Suggested Citation

  • 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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    References listed on IDEAS

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    1. repec:eee:energy:v:149:y:2018:i:c:p:762-778 is not listed on IDEAS
    2. repec:eee:eneeco:v:65:y:2017:i:c:p:251-261 is not listed on IDEAS
    3. 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.
    4. repec:eee:renene:v:115:y:2018:i:c:p:1014-1025 is not listed on IDEAS

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