IDEAS home Printed from https://ideas.repec.org/p/fda/fdaddt/2010-17.html
   My bibliography  Save this paper

Electricity generation cost in isolated system: the complementarities of natural gas and renewables in the Canary Islands

Author

Listed:
  • Gustavo A. Marrero
  • Francisco Javier Ramos-Real

Abstract

The Canary Islands offer an example of an isolated electric grid of relative important size within the EU. Due to its peculiarities, the role of renewable energies and their complementarity with fossil fuels offers a solid path to achieving the main energy policy goals of the Islands. The purpose of this paper is to assess the current situation and the energy objectives proposed in the Energy Plan of the Canaries (PECAN 2006) for the electricity industry, taking into account the average cost and the risk associated with the different alternatives for generating electricity by means of the Mean-Variance Portfolio Theory. Our analysis highlights the inefficiency of the current electricity generating mix in terms of cost, risk and lack of diversification. Shifting toward an efficient system would involve optimizing the use of endogenous energy sources and introducing natural gas to generate electricity. This scenario would mean reducing both cost and risk by almost 30% each, as well as atmospheric CO2 emissions. Our results agree with the PECAN philosophy.

Suggested Citation

  • Gustavo A. Marrero & Francisco Javier Ramos-Real, 2010. "Electricity generation cost in isolated system: the complementarities of natural gas and renewables in the Canary Islands," Working Papers 2010-17, FEDEA.
  • Handle: RePEc:fda:fdaddt:2010-17
    as

    Download full text from publisher

    File URL: http://documentos.fedea.net/pubs/dt/2010/dt-2010-17.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Perez, Yannick & Ramos Real, Francisco Javier, 2008. "How to make a European integrated market in small and isolated electricity systems? The case of the Canary Islands," Energy Policy, Elsevier, vol. 36(11), pages 4159-4167, November.
    2. Ramos-Real, Francisco Javier & Moreno-Piquero, Juan Carlos & Ramos-Henriquez, Jose Manuel, 2007. "The effects of introducing natural gas in the Canary Islands for electricity generation," Energy Policy, Elsevier, vol. 35(7), pages 3925-3935, July.
    3. Awerbuch, Shimon & Yang, Spencer, 2007. "Efficient electricity generating portfolios for Europe: maximising energy security and climate change mitigation," EIB Papers 7/2007, European Investment Bank, Economics Department.
    4. Feretic, Danilo & Tomsic, Zeljko, 2005. "Probabilistic analysis of electrical energy costs comparing: production costs for gas, coal and nuclear power plants," Energy Policy, Elsevier, vol. 33(1), pages 5-13, January.
    5. Perez, Yannick & Ramos-Real, Francisco Javier, 2009. "The public promotion of wind energy in Spain from the transaction costs perspective 1986-2007," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(5), pages 1058-1066, June.
    6. Shimon Awerbuch, 2006. "Portfolio-Based Electricity Generation Planning: Policy Implications For Renewables And Energy Security," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 11(3), pages 693-710, May.
    7. Albrecht, Johan, 2007. "The future role of photovoltaics: A learning curve versus portfolio perspective," Energy Policy, Elsevier, vol. 35(4), pages 2296-2304, April.
    8. Gotham, Douglas & Muthuraman, Kumar & Preckel, Paul & Rardin, Ronald & Ruangpattana, Suriya, 2009. "A load factor based mean-variance analysis for fuel diversification," Energy Economics, Elsevier, vol. 31(2), pages 249-256, March.
    9. Wiser, Ryan & Bachrach, Devra & Bolinger, Mark & Golove, William, 2004. "Comparing the risk profiles of renewable and natural gas-fired electricity contracts," Renewable and Sustainable Energy Reviews, Elsevier, vol. 8(4), pages 335-363, August.
    10. Weisser, Daniel, 2004. "Power sector reform in small island developing states: what role for renewable energy technologies?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 8(2), pages 101-127, April.
    11. Finn Roar Aune, Knut Einar Rosendahl and Eirik Lund Sagen, 2009. "Globalisation of Natural Gas Markets - Effects on Prices and Trade Patterns," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 39-54.
    12. Muñoz, José Ignacio & Sánchez de la Nieta, Agustín A. & Contreras, Javier & Bernal-Agustín, José L., 2009. "Optimal investment portfolio in renewable energy: The Spanish case," Energy Policy, Elsevier, vol. 37(12), pages 5273-5284, December.
    13. Haim Levy, 2004. "Prospect Theory and Mean-Variance Analysis," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1015-1041.
    14. Awerbuch, Shimon, 2000. "Investing in photovoltaics: risk, accounting and the value of new technology," Energy Policy, Elsevier, vol. 28(14), pages 1023-1035, November.
    15. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    16. H. Brett Humphreys & Katherine T. McClain, 1998. "Reducing the Impacts of Energy Price Volatility Through Dynamic Portfolio Selection," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 107-131.
    17. Shefrin, Hersh & Statman, Meir, 2000. "Behavioral Portfolio Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(02), pages 127-151, June.
    18. Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(04), pages 1851-1872, September.
    19. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
    20. Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom & Yang, Ming, 2007. "Investment risks under uncertain climate change policy," Energy Policy, Elsevier, vol. 35(11), pages 5766-5773, November.
    21. Weisser, Daniel, 2004. "On the economics of electricity consumption in small island developing states: a role for renewable energy technologies?," Energy Policy, Elsevier, vol. 32(1), pages 127-140, January.
    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. Tichavska, Miluše & Tovar, Beatriz, 2015. "Port-city exhaust emission model: An application to cruise and ferry operations in Las Palmas Port," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 347-360.
    2. Guerrero-Lemus, Ricardo & Marrero, Gustavo A. & Puch, Luis A., 2012. "Costs for conventional and renewable fuels and electricity in the worldwide transport sector: A mean–variance portfolio approach," Energy, Elsevier, vol. 44(1), pages 178-188.
    3. Losekann, Luciano & Marrero, Gustavo A. & Ramos-Real, Francisco J. & de Almeida, Edmar Luiz Fagundes, 2013. "Efficient power generating portfolio in Brazil: Conciliating cost, emissions and risk," Energy Policy, Elsevier, vol. 62(C), pages 301-314.
    4. Federica Cucchiella & Idiano D’Adamo & Massimo Gastaldi, 2016. "Optimizing plant size in the planning of renewable energy portfolios," Letters in Spatial and Resource Sciences, Springer, vol. 9(2), pages 169-187, July.
    5. Gils, Hans Christian & Simon, Sonja, 2017. "Carbon neutral archipelago – 100% renewable energy supply for the Canary Islands," Applied Energy, Elsevier, vol. 188(C), pages 342-355.
    6. Alfredo Ramírez Díaz & Francisco J. Ramos-Real & Gustavo A. Marrero & Yannick Perez, 2015. "Impact of Electric Vehicles as Distributed Energy Storage in Isolated Systems: The Case of Tenerife," Sustainability, MDPI, Open Access Journal, vol. 7(11), pages 1-27, November.
    7. Rodrigues, E.M.G. & Godina, R. & Santos, S.F. & Bizuayehu, A.W. & Contreras, J. & Catalão, J.P.S., 2014. "Energy storage systems supporting increased penetration of renewables in islanded systems," Energy, Elsevier, vol. 75(C), pages 265-280.
    8. repec:eee:energy:v:128:y:2017:i:c:p:86-100 is not listed on IDEAS
    9. Vincent Rious & Yannick Perez, 2012. "What type(s) of support schemes for storage in island power systems?," RSCAS Working Papers 2012/70, European University Institute.
    10. Colmenar-Santos, Antonio & Linares-Mena, Ana-Rosa & Borge-Diez, David & Quinto-Alemany, Carlos-Domingo, 2017. "Impact assessment of electric vehicles on islands grids: A case study for Tenerife (Spain)," Energy, Elsevier, vol. 120(C), pages 385-396.
    11. Rious, Vincent & Perez, Yannick, 2014. "Review of supporting scheme for island powersystem storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 754-765.
    12. repec:eee:energy:v:134:y:2017:i:c:p:311-322 is not listed on IDEAS
    13. Katsaprakakis, Dimitris Al., 2016. "Hybrid power plants in non-interconnected insular systems," Applied Energy, Elsevier, vol. 164(C), pages 268-283.
    14. Alonso, Patricia Martínez & Hewitt, Richard & Pacheco, Jaime Díaz & Bermejo, Lara Román & Jiménez, Verónica Hernández & Guillén, Jara Vicente & Bressers, Hans & de Boer, Cheryl, 2016. "Losing the roadmap: Renewable energy paralysis in Spain and its implications for the EU low carbon economy," Renewable Energy, Elsevier, vol. 89(C), pages 680-694.
    15. Vithayasrichareon, Peerapat & MacGill, Iain F., 2012. "A Monte Carlo based decision-support tool for assessing generation portfolios in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 41(C), pages 374-392.
    16. Henry, Legena & Bridge, Jacqueline & Henderson, Mark & Keleher, Kevin & Barry, Megan & Goodwin, Geoff & Namugayi, Deborah & Morris, Marisha & Oaks, Benjamin & Dalrymple, Odesma & Shrake, Scott & Ota, , 2015. "Key factors around ocean-based power in the Caribbean region, via Trinidad and Tobago," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 160-175.
    17. repec:eee:rensus:v:77:y:2017:i:c:p:636-651 is not listed on IDEAS
    18. repec:eee:eneeco:v:64:y:2017:i:c:p:158-169 is not listed on IDEAS
    19. Guerrero-Lemus, Ricardo & González-Díaz, Benjamín & Ríos, Gerardo & Dib, Ramzi N., 2015. "Study of the new Spanish legislation applied to an insular system that has achieved grid parity on PV and wind energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 426-436.
    20. Gustavo A. Marrero & Luis A. Puch & Francisco Javier Ramos-Real, 2010. "Riesgo y costes medios en la generación de electricidad: diversificación e implicaciones de política energética," Economic Reports 13-2010, FEDEA.
    21. deLlano-Paz, Fernando & Martínez Fernandez, Paulino & Soares, Isabel, 2016. "Addressing 2030 EU policy framework for energy and climate: Cost, risk and energy security issues," Energy, Elsevier, vol. 115(P2), pages 1347-1360.
    22. Yuan-Zhang Sun & Jin Lin & Yong-Hua Song & Jian Xu & Xiao-Ming Li & Jian-Xun Dong, 2012. "An Industrial System Powered by Wind and Coal for Aluminum Production: A Case Study of Technical Demonstration and Economic Feasibility," Energies, MDPI, Open Access Journal, vol. 5(11), pages 1-26, November.
    23. deLlano-Paz, Fernando & Calvo-Silvosa, Anxo & Iglesias Antelo, Susana & Soares, Isabel, 2015. "The European low-carbon mix for 2030: The role of renewable energy sources in an environmentally and socially efficient approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 48(C), pages 49-61.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:fda:fdaddt:2010-17. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmen Arias). General contact details of provider: http://www.fedea.net .

    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 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.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.