IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/24712.html
   My bibliography  Save this paper

Variable Pricing and the Cost of Renewable Energy

Author

Listed:
  • Imelda
  • Matthias Fripp
  • Michael J. Roberts

Abstract

On a levelized-cost basis, solar and wind power generation are now competitive with fossil fuels. But supply of these renewable resources is variable and intermittent, unlike traditional power plants. As a result, the cost of using flat retail pricing instead of dynamic, marginal-cost pricing—long advocated by economists—will grow. We evaluate the potential gains from dynamic pricing in high-renewable systems using a novel model of power supply and demand in Hawai’i. The model breaks new ground in integrating investment in generation and storage capacity with chronological operation of the system, including an account of reserves, a demand system with different interhour elasticities for different uses, and substitution between power and other goods and services. The model is open source and fully adaptable to other settings. Consistent with earlier studies, we find that dynamic pricing provides little social benefit in fossil-fuel-dominated power systems, only 2.6 to 4.6 percent of baseline annual expenditure. But dynamic pricing leads to a much greater social benefit of 8.5 to 23.4 percent in a 100 percent renewable power system with otherwise similar assumptions. High renewable systems, including 100 percent renewable, are remarkably affordable. The welfare maximizing (unconstrained) generation portfolio under the utility’s projected 2045 technology and pessimistic interhour demand flexibility uses 79 percent renewable energy, without even accounting for pollution externalities. If overall demand for electricity is more elastic than our baseline (0.1), renewable energy is even cheaper and variable pricing can improve welfare by as much as 47 percent of baseline expenditure.

Suggested Citation

  • Imelda & Matthias Fripp & Michael J. Roberts, 2018. "Variable Pricing and the Cost of Renewable Energy," NBER Working Papers 24712, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24712
    Note: EEE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w24712.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    2. Severin Borenstein, 2005. "The Long-Run Efficiency of Real-Time Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 93-116.
    3. George B. Dantzig & Philip Wolfe, 1960. "Decomposition Principle for Linear Programs," Operations Research, INFORMS, vol. 8(1), pages 101-111, February.
    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. Stürmer, Bernhard & Novakovits, Philipp & Luidolt, Alexander & Zweiler, Richard, 2019. "Potential of renewable methane by anaerobic digestion from existing plant stock – An economic reflection of an Austrian region," Renewable Energy, Elsevier, vol. 130(C), pages 920-929.
    2. Milchram, Christine & Hillerbrand, Rafaela & van de Kaa, Geerten & Doorn, Neelke & Künneke, Rolf, 2018. "Energy Justice and Smart Grid Systems: Evidence from the Netherlands and the United Kingdom," Applied Energy, Elsevier, vol. 229(C), pages 1244-1259.
    3. Catherine Hausman, 2019. "Shock Value: Bill Smoothing and Energy Price Pass‐Through," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 242-278, June.
    4. Darowicki, K. & Janicka, E. & Mielniczek, M. & Zielinski, A. & Gawel, L. & Mitzel, J. & Hunger, J., 2019. "The influence of dynamic load changes on temporary impedance in hydrogen fuel cells, selection and validation of the electrical equivalent circuit," Applied Energy, Elsevier, vol. 251(C), pages 1-1.
    5. Jimenez-Navarro, Juan-Pablo & Kavvadias, Konstantinos & Filippidou, Faidra & Pavičević, Matija & Quoilin, Sylvain, 2020. "Coupling the heating and power sectors: The role of centralised combined heat and power plants and district heat in a European decarbonised power system," Applied Energy, Elsevier, vol. 270(C).
    6. Andrew Izawa & Matthias Fripp, 2018. "Multi-Objective Control of Air Conditioning Improves Cost, Comfort and System Energy Balance," Energies, MDPI, Open Access Journal, vol. 11(9), pages 1-18, September.
    7. Erşen, Emre & Çelikpala, Mitat, 2019. "Turkey and the changing energy geopolitics of Eurasia," Energy Policy, Elsevier, vol. 128(C), pages 584-592.
    8. Weber, Ines & Wolff, Anna, 2018. "Energy efficiency retrofits in the residential sector – analysing tenants’ cost burden in a German field study," Energy Policy, Elsevier, vol. 122(C), pages 680-688.
    9. Butera, Giacomo & Jensen, Søren Højgaard & Clausen, Lasse Røngaard, 2019. "A novel system for large-scale storage of electricity as synthetic natural gas using reversible pressurized solid oxide cells," Energy, Elsevier, vol. 166(C), pages 738-754.
    10. Majumdar, Debaleena & Pasqualetti, Martin J., 2019. "Analysis of land availability for utility-scale power plants and assessment of solar photovoltaic development in the state of Arizona, USA," Renewable Energy, Elsevier, vol. 134(C), pages 1213-1231.
    11. Huang, Donna & Daniel, Lyrian & Moore, Trivess & Baker, Emma & BEER, ANDREW & Willand, Nicola & Horne, Ralph & Hamilto, Cathryn, 2020. "Warm, cool and energy-affordable housing policy solutions for low-income renters," SocArXiv vxmc9, Center for Open Science.
    12. Gacitua, L. & Gallegos, P. & Henriquez-Auba, R. & Lorca, Á. & Negrete-Pincetic, M. & Olivares, D. & Valenzuela, A. & Wenzel, G., 2018. "A comprehensive review on expansion planning: Models and tools for energy policy analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 346-360.
    13. Arteconi, Alessia & Del Zotto, Luca & Tascioni, Roberto & Cioccolanti, Luca, 2019. "Modelling system integration of a micro solar Organic Rankine Cycle plant into a residential building," Applied Energy, Elsevier, vol. 251(C), pages 1-1.
    14. Reda, Francesco & Fatima, Zarrin, 2019. "Northern European nearly zero energy building concepts for apartment buildings using integrated solar technologies and dynamic occupancy profile: Focus on Finland and other Northern European countries," Applied Energy, Elsevier, vol. 237(C), pages 598-617.
    15. Gimeno-Frontera, Beatriz & Mainar-Toledo, María Dolores & Sáez de Guinoa, Aitana & Zambrana-Vasquez, David & Zabalza-Bribián, Ignacio, 2018. "Sustainability of non-residential buildings and relevance of main environmental impact contributors' variability. A case study of food retail stores buildings," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 669-681.

    More about this item

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

    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:nbr:nberwo:24712. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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.