Against the wind: the economic cost of renewable intermittency under transmission constraints | Ron Chan

Ron Chan is an environmental and energy economist who is interested in studying a wide range of policy issues. Ron obtained his Ph.D. from the University of Maryland in 2014 and joined the University of Manchester in the same year. His research studies the economic impact of air pollution, energy transition and climate change.

Ron Chan will be presenting the paper Against the Wind: The Economic Cost of Renewable Intermittency under Transmission Constraints (Ron Chan, Takeo Hori and Takahiko Kiso).

Abstract

The need to incorporate renewable energy raises challenges in the efficiency and reliability of the electricity market. In this paper, we focus on the two challenges facing the incorporation of renewable energy in the wholesale electricity market: the intermittency of renewables and the transmission constraints between regions. We first demonstrate the complementarity property of battery storage and transmission infrastructure improvements that address these two margins in improving economic efficiency. Using market data from ERCOT, we estimate a simple electricity market model to recover unobserved market fundamentals such as transmission constraints to quantify their marginal benefits and complementarities. Our findings reveal that both reducing renewable intermittency and expanding transmission capacity significantly decrease operating costs, with a more pronounced effect observed in the former. Most importantly, we find the economic significance on the interaction of the two. The policy experiment suggests an increase in the marginal benefits of improvements in transmission capacity when battery storage reduces the problem of renewable intermittency, highlighting the importance of simultaneous investment in storage and transmission for effective implementation of energy policy.

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