(532b) The Effect of High-Penetration Renewable Energy on Electricity Prices and Emissions

Globally there has been a substantial push for renewable energy adoption. Some of the reasons for this drive include the need for carbon reduction in energy sources in the face of increasing atmospheric CO2 concentrations, energy security in light of political tensions in energy producing regions and increasingly difficult means of accessing fossil fuel reserves. Many countries have instituted various policies and targets for the reduction of carbon in the energy system. These include subsidies like feed-in tariffs or tax incentives for renewable energy sources, priority dispatch in the merit order in the electricity market and even carbon emission caps or taxes on fossil fuel plants. However, these policies, while effective in increasing renewable penetration, may distort market forces or even disrupt the stability of the energy market. Although it has been shown that the presence of renewables in the electricity system decreases the price of electricity by a certain percentage, known as the merit order effect, there could also be negative effects on the system.

This study investigates the effects of high penetration of renewables in the electricity market, particularly on the stability of the system and price volatility. Concurrently, the temporal effects on carbon emissions are also quantified and analyzed. It is hypothesized that with the increase of renewable generators in the system, certain traditional fossil fuel generators may be unable to compete in the electricity market. Low marginal cost of electricity production, coupled with priority dispatch could reduce or eliminate profit avenues for some generators. If these generators do not foresee profitable operations in the electricity market, the generators could reduce their presence in the market and retire certain generators. The resultant loss of some of these dispatch-able generators could amplify market effects during exceptional events. Also, the effects of renewable generation on the diurnal profile and quantity of carbon emissions will also differ with different renewable mix and penetration levels.

The results of this study show that marginal prices seem to be directly correlated with incremental renewable generation capacity, however, the rate of increment of marginal prices of electricity differ significantly with different renewable energy sources. It can also be seen that for different renewable energy sources, the rate of increase of marginal prices are significantly different. In fact, when only solar capacity is added to the system, the marginal price increase is substantially smaller.  Conversely, wind energy contributes a higher degree of uncertainty and affects electricity generation costs much more drastically. Renewable energy sources do help to reduce CO₂ emissions from electricity generation. The higher the penetration of renewables, the less CO₂ the generation system emits. However, once again, the rate of decrease varies between solar and wind. In this instance, when compared to solar energy, wind energy produces a greater reduction in CO₂ emissions.