Electricity storage or transmission? Comparing social welfare between electricity arbitrages

Abstract

Electricity storage and inter-regional transmission are expected to play a greater role in mitigating the power surplus caused by the large-scale introduction of solar power generation. In this study, we evaluate the impacts of these two power arbitrages and provide their welfare implications. We develop a simple analytical framework based on the demand and supply in the power market, and apply the framework to Kyushu area in Japan to quantify the social benefits of current storage and transmission practice. We estimate electricity demand curves and define supply curves from the data to describe the social impacts of the two arbitrages. Our main findings can be summarized as follows. First, the estimation results indicate that the price elasticity of electricity demand is −0.228 and −0.252 in high and low solar hours, respectively. Second, the results show that the current storage and transmission operations provide social benefits of 73,000 and 59,000 USD per day, respectively. Third, both arbitrages lead to external benefits by reducing CO2 emissions from thermal power generation. These results suggest that the current storage and transmission operations provide positive social benefits without detrimental effects on consumer, producer or environment. Therefore, both storage and transmission are preferable measures for mitigating the impact of variable solar power generation on society and the environment.