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Approximations in power transmission planning: implications for the cost and performance of renewable portfolio standards

Author

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  • Francisco Munoz
  • Enzo Sauma
  • Benjamin Hobbs

Abstract

Renewable portfolio standards (RPSs) are popular market-based mechanisms for promoting development of renewable power generation. However, they are usually implemented without considering the capabilities and cost of transmission infrastructure. We use single- and multi-stage planning approaches to find cost-effective transmission and generation investments to meet single and multi-year RPS goals, respectively. Using a six-node network and assuming a linearized DC power flow, we examine how the lumpy nature of network reinforcements and Kirchhoff’s Voltage Law can affect the performance of RPSs. First, we show how simplified planning approaches that ignore transmission constraints, transmission lumpiness, or Kirchhoff’s voltage law yield distorted estimates of the type and location of infrastructure, as well as inaccurate compliance costs to meet the renewable goals. Second, we illustrate how lumpy transmission investments and Kirchhoff’s voltage law result in compliance costs that are nonconvex with respect to the RPS targets, in the sense that the marginal costs of meeting the RPS may decrease rather than increase as the target is raised. Thus, the value of renewable energy certificates (RECs) also depends on the network topology, as does the amount of noncompliance with the RPS, if noncompliance is penalized but not prohibited. Finally, we use a multi-stage planning model to determine the optimal generation and transmission infrastructure for RPS designs that set multiyear goals. We find that the optimal infrastructure to meet RPS policies that are enforced year-by-year differ from the optimal infrastructure if banking and borrowing is allowed in the REC market. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Francisco Munoz & Enzo Sauma & Benjamin Hobbs, 2013. "Approximations in power transmission planning: implications for the cost and performance of renewable portfolio standards," Journal of Regulatory Economics, Springer, vol. 43(3), pages 305-338, June.
  • Handle: RePEc:kap:regeco:v:43:y:2013:i:3:p:305-338
    DOI: 10.1007/s11149-013-9209-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Renewable portfolio standards; Transmission planning; Power systems economics; C61; D41; L94; Q48; Q58;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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