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Renewable Energy Expansion and the Value of Balance Regulation Power

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  • Försund, Finn

    (University of Oslo)

  • Hjalmarsson, Lennart

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

To achieve a stable and reliable electricity supply, efficient provision of reserve capacity or, more generally, ancillary services is crucial. Because of the expansion of wind power with random variation in supply, and expected environmental restrictions in hydropower operation causing reductions in regulated hydropower capacity, the balancing power and system reliability issues have become topical in Scandinavia. Moreover, there seems to be a wide-spread opinion that increase in wind-power generation will lead to increased demand for regulating power, much higher prices for reserves and a much higher value of regulated hydro power. Thus, this chapter deals with the value of balance regulation power, or electricity reserves, in the Nordic electricity market, and we will address the issue of the future value of electricity reserves, hydro capacity in particular, that could be used either for energy production or to balance power production, and more generally discuss the value of balancing power in the Nordic electricity system. In the first, theoretical, part of this study we will apply a simple dynamic electricity generation model, involving hydropower, thermal power and wind power to derive the value of the water in a dam of a hydropower plant. In the second, more empirically oriented, part we will address a number of issues related to balance regulation and the value of balancing power with focus on the Nordic electricity market and against the background of an expanding generation capacity of intermittent renewable electricity, especially wind power.

Suggested Citation

  • Försund, Finn & Hjalmarsson, Lennart, 2010. "Renewable Energy Expansion and the Value of Balance Regulation Power," Working Papers in Economics 441, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0441
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    File URL: http://hdl.handle.net/2077/22318
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    References listed on IDEAS

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    1. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
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    Cited by:

    1. Mauritzen, Johannes, 2012. "Dead Battery? Wind Power, the Spot Market, and Hydro Power Interaction in the Nordic Electricity Market," Working Paper Series 908, Research Institute of Industrial Economics.
    2. Mauritzen, Johannes, 2011. "Dead Battery? Wind Power, The Spot Market, and Hydro Power Interaction in the Nordic Electricity Market," Discussion Papers 2011/16, Norwegian School of Economics, Department of Business and Management Science.
    3. Johannes Mauritzen, 2013. "Dead Battery? Wind Power, the Spot Market, and Hydropower Interaction in the Nordic Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

    More about this item

    Keywords

    Electricity; ancillary services; reserve capacity; regulating power; wind power;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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