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Buffering Volatility: Storage Investments and Technology-Specific Renewable Energy Support

Author

Listed:
  • Jan Abrell

    (ETH Zurich, Switzerland)

  • Sebastian Rausch

    (ETH Zurich, Switzerland)

  • Clemens Streitberger

    (ETH Zurich, Switzerland)

Abstract

Mitigating climate change will require integrating large amounts of highly intermittent renewable energy (RE) sources in future electricity markets. Considerable uncertainties exist about the cost and availability of future large-scale storage to alleviate the potential mismatch between demand and supply. This paper examines the suitability of regulatory (public policy) mechanisms for coping with the volatility induced by intermittent RE sources, using a numerical equilibrium model of a future wholesale electricity market. We find that the optimal RE subsidies are technology-specific reflecting the heterogeneous value for system integration. Differentiated RE subsidies reduce the curtailment of excess production, thereby preventing costly investments in energy storage. Using a simple cost-benefit framework, we show that a “smart” design of RE support policies significantly reduces the level of optimal storage. We further find that the marginal benefits of storage rapidly decrease for short-term (intra-day) storage and are small for long-term (seasonal) storage independent of the storage level. This suggests that storage is not likely to be the limiting factor for decarbonizing the electricity sector.

Suggested Citation

  • Jan Abrell & Sebastian Rausch & Clemens Streitberger, 2019. "Buffering Volatility: Storage Investments and Technology-Specific Renewable Energy Support," CER-ETH Economics working paper series 19/310, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:19-310
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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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