IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v16y2023i23p7895-d1293309.html
   My bibliography  Save this article

Implications of Growing Wind and Solar Penetration in Retail Electricity Markets with Gradual Demand Response

Author

Listed:
  • Chin Hui Hao

    (College of International Business and Trade, Xiamen Ocean Vocational College, Xiamen 361005, China)

  • Presley K. Wesseh

    (School of Management, China Institute for Studies in Energy Policy, Collaborative, Innovation Center for Energy Economics and Energy Policy, Xiamen University, Xiamen 361005, China
    Center for African Development Strategy (CFADS), Monrovia 1000, Liberia
    Graduate School of Climate Change and Environmental Studies, University of Liberia, Monrovia 1000, Liberia)

  • David Iheke Okorie

    (Center for African Development Strategy (CFADS), Monrovia 1000, Liberia
    University of Waikato Joint Institute, Hangzhou City University (HZCU), Hangzhou 310015, China
    Waikato Management School (WMS), School of Accounting, Finance and Economics (SAFE), University of Waikato, Hamilton 3240, New Zealand
    Centre for the Study of the Economies of Africa (CSEA), Abuja 900108, Nigeria)

  • Hermas Abudu

    (College of Overseas Education, Chengdu University, Chengdu 610106, China)

Abstract

Time-of-use pricing in retail electricity markets implies that wholesale market scarcity becomes easily communicated to end consumers. Yet, it is not well-understood if and how the price formation process in retail electricity markets will help to reward the demand for operational flexibility due to growth in intermittent generation. To contribute to this discussion, this paper develops a partial equilibrium model of the retail electricity market calibrated to Chinese data. The paper finds that tariffs in this market may not be significantly suppressed by growth in near-zero costs renewable sources when controlling for flexibility restrictions on thermal generation assets and when a significant curtailment of variable renewable resources exists in the market. In addition, it shows that the price formation process in retail electricity markets which controls for flexibility restrictions on thermal generation while allowing for consumers to respond slowly to price changes is a feasible strategy to reward the demand for operational flexibility. Finally, the paper reveals that while integrating intermittent generation beyond levels which the available storage capacities can accommodate may result in losses to producers, benefits to consumers may offset these losses, leading to overall welfare gains.

Suggested Citation

  • Chin Hui Hao & Presley K. Wesseh & David Iheke Okorie & Hermas Abudu, 2023. "Implications of Growing Wind and Solar Penetration in Retail Electricity Markets with Gradual Demand Response," Energies, MDPI, vol. 16(23), pages 1-15, December.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:23:p:7895-:d:1293309
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/16/23/7895/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/16/23/7895/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:hal:spmain:info:hdl:2441/1v5t17iu579ln8fcl17pe3te92 is not listed on IDEAS
    2. Kenneth Lee & Edward Miguel & Catherine Wolfram, 2020. "Experimental Evidence on the Economics of Rural Electrification," Journal of Political Economy, University of Chicago Press, vol. 128(4), pages 1523-1565.
    3. Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, August.
    4. Schill, Wolf-Peter, 2011. "Electric Vehicles in Imperfect Electricity Markets: The case of Germany," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 39(10), pages 6178-6189.
    5. Nilsson, Anders & Stoll, Pia & Brandt, Nils, 2017. "Assessing the impact of real-time price visualization on residential electricity consumption, costs, and carbon emissions," Resources, Conservation & Recycling, Elsevier, vol. 124(C), pages 152-161.
    6. Xu, Lei & Chen, Nengcheng & Chen, Zeqiang, 2017. "Will China make a difference in its carbon intensity reduction targets by 2020 and 2030?," Applied Energy, Elsevier, vol. 203(C), pages 874-882.
    7. Wolf-Peter Schill & Claudia Kemfert, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-88.
    8. Dehnavi, Ehsan & Abdi, Hamdi, 2016. "Optimal pricing in time of use demand response by integrating with dynamic economic dispatch problem," Energy, Elsevier, vol. 109(C), pages 1086-1094.
    9. Paul L. Joskow & Catherine D. Wolfram, 2012. "Dynamic Pricing of Electricity," American Economic Review, American Economic Association, vol. 102(3), pages 381-385, May.
    10. Paul Simshauser & David Downer, 2012. "Dynamic Pricing and the Peak Electricity Load Problem," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(3), pages 305-324, September.
    11. Ali Daraeepour, Eric D. Larson, and Chris Greig, 2022. "Investigating Price Formation Enhancements in Non-Convex Electricity Markets as Renewable Generation Grows," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    12. Yueming Qiu & Loren Kirkeide & Yi David Wang, 2018. "Effects of Voluntary Time-of-Use Pricing on Summer Electricity Usage of Business Customers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 417-440, February.
    13. Ciwei Dong & Chi To Ng & T. C. E. Cheng, 2017. "Electricity Time-of-Use Tariff with Stochastic Demand," Production and Operations Management, Production and Operations Management Society, vol. 26(1), pages 64-79, January.
    14. Presley K. Wesseh & Yuqing Zhong & Chin Hui Hao, 2023. "Electricity Supply Unreliability and Technical Efficiency: Evidence from Listed Chinese Manufacturing Companies," Energies, MDPI, vol. 16(7), pages 1-14, April.
    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. Bin Li & Haoran Li & Zhencheng Liang & Xiaoqing Bai, 2024. "Load Day-Ahead Automatic Generation Control Reserve Capacity Demand Prediction Based on the Attention-BiLSTM Network Model Optimized by Improved Whale Algorithm," Energies, MDPI, vol. 17(2), pages 1-25, January.

    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. Wesseh, Presley K. & Benjamin, Nelson I. & Lin, Boqiang, 2022. "The coordination of pumped hydro storage, electric vehicles, and climate policy in imperfect electricity markets: Insights from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 160(C).
    2. Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-1438, April.
    3. Goutam Dutta & Krishnendranath Mitra, 2017. "A literature review on dynamic pricing of electricity," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(10), pages 1131-1145, October.
    4. Nezamoddini, Nasim & Wang, Yong, 2017. "Real-time electricity pricing for industrial customers: Survey and case studies in the United States," Applied Energy, Elsevier, vol. 195(C), pages 1023-1037.
    5. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    6. Harding, Matthew & Kettler, Kyle & Lamarche, Carlos & Ma, Lala, 2023. "The (alleged) environmental and social benefits of dynamic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 574-593.
    7. Thomaßen, Georg & Redl, Christian & Bruckner, Thomas, 2022. "Will the energy-only market collapse? On market dynamics in low-carbon electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).
    8. Lang, Corey & Qiu, Yueming (Lucy) & Dong, Luran, 2023. "Increasing voluntary enrollment in time-of-use electricity rates: Findings from a survey experiment," Energy Policy, Elsevier, vol. 173(C).
    9. Anette Boom & Sebastian Schwenen, 2021. "Is real-time pricing smart for consumers?," Journal of Regulatory Economics, Springer, vol. 60(2), pages 193-213, December.
    10. Schroeder, Andreas & Traber, Thure, 2012. "The economics of fast charging infrastructure for electric vehicles," Energy Policy, Elsevier, vol. 43(C), pages 136-144.
    11. Choi, Dong Gu & Murali, Karthik, 2022. "The impact of heterogeneity in consumer characteristics on the design of optimal time-of-use tariffs," Energy, Elsevier, vol. 254(PB).
    12. Scott P. Burger & Christopher R. Knittel & Ignacio J. Pérez-Arriaga & Ian Schneider & Frederik vom Scheidt, 2019. "The Efficiency and Distributional Effects of Alternative Residential Electricity Rate Designs," NBER Working Papers 25570, National Bureau of Economic Research, Inc.
    13. Jordehi, A. Rezaee, 2019. "Optimisation of demand response in electric power systems, a review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 103(C), pages 308-319.
    14. Karsten Neuhoff & Sophia Rüster & Sebastian Schwenen, 2015. "Power Market Design beyond 2020: Time to Revisit Key Elements?," Discussion Papers of DIW Berlin 1456, DIW Berlin, German Institute for Economic Research.
    15. Shi, Changfeng & Zhi, Jiaqi & Yao, Xiao & Zhang, Hong & Yu, Yue & Zeng, Qingshun & Li, Luji & Zhang, Yuxi, 2023. "How can China achieve the 2030 carbon peak goal—a crossover analysis based on low-carbon economics and deep learning," Energy, Elsevier, vol. 269(C).
    16. Carsten Helm & Mathias Mier, 2020. "Steering the Energy Transition in a World of Intermittent Electricity Supply: Optimal Subsidies and Taxes for Renewables Storage," ifo Working Paper Series 330, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    17. Megy, Camille & Massol, Olivier, 2023. "Is Power-to-Gas always beneficial? The implications of ownership structure," Energy Economics, Elsevier, vol. 128(C).
    18. Bensch, Gunther & Gotz, Gunnar & Peters, Jörg, 2020. "Effects of rural electrification on employment: A comment on Dinkelman (2011)," Ruhr Economic Papers 840, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    19. ITO Koichiro & IDA Takanori & TANAKA Makoto, 2015. "The Persistence of Moral Suasion and Economic Incentives: Field experimental evidence from energy demand," Discussion papers 15014, Research Institute of Economy, Trade and Industry (RIETI).
    20. Mattias Vesterberg and Chandra Kiran B. Krishnamurthy, 2016. "Residential End-use Electricity Demand: Implications for Real Time Pricing in Sweden," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).

    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:gam:jeners:v:16:y:2023:i:23:p:7895-:d:1293309. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.