Electricity sector impacts of water taxation for natural gas supply under high renewable generation

Abstract

The future of energy development could be soon restrained by water scarcity. Shale gas, which is highly water-consuming in its extraction, is even more vulnerable. Thus, understanding the power system’s response to water constraints considering uncertainties from variable renewable energy generation becomes critical. This study presents a multi-stage stochastic Mixed Complementarity Problem for the energy sector, considering renewables variability and water scarcity’s impact on natural gas extraction. The power and natural gas sectors were modeled with hourly and daily resolution, respectively. Results demonstrate that stochastic planning enables smoother natural gas production and storage strategies, ensuring consistent operations with a narrower production range. Water taxation affects gas production and the generation mix, leading to electricity price changes. Gas-based electricity generation varies up to 16.2% based on water taxation and wind availability. Furthermore, water taxation of up to 20% can raise gas prices by up to 21.1%. This study underscores the need to integrate water scarcity considerations into energy planning, offering insights into sustainable decision-making, water resource management, reliable electricity generation, and price stability amidst evolving renewable portfolios.