Abstract
The global increase in electricity supply volatility due to the growing share of intermittent renewable energy sources together with recent extreme weather events draws attention to energy system reliability issues and the role of renewable energy sources within these systems. Renewable energy deployment strategies have already become a key element in debates on future global energy systems. At the same time, more extensive use of renewable energy sources implies a higher dependence on intermittent power, which puts the reliability of the electricity system at risk. Policymakers are introducing measures to increase the reliability of energy systems. Paradoxically, support for renewable energy and analyses of energy system reliability have been dealt with by two different and rarely overlapping research approaches. As a result, renewable energy promotion has often been designed without accounting for system reliability. To our knowledge, a model that captures those investment incentives and allows for tuning such financial support does not exist. This paper introduces a hybrid model that can potentially steer renewable energy investments in favor of energy system reliability. We demonstrate the idea of reliability-based support for renewable energy sources in action using a stylized case. Depending on the complementarity of different renewable energy power outputs available in the system, such reliability-based support can substantially reduce the necessity for greater backup capacity, can cut the overall costs of the energy system, and can reduce its environmental footprint.
Highlights
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The overall electricity supply should match the demand at every moment to avoid costly blackouts
This paper aims to design a conceptual model that allows for bridging these two detached phenomena: renewable energy support and energy system reliability
Summary
Even the COVID-19 pandemic has not slowed down the growth in the global renewable power capacity, reaching a record share of almost 30% of the global energy mix in 2020 [1]. Such development poses challenges for energy systems. In order to understand what investment incentives a policy creates, one needs to take the investor’s perspective and to analyze the investment profitability and how the policy affects it Such an investment analysis is conducted with a cost–benefit approach and in particular real options framework [21]. The real options framework becomes especially useful in understanding the effects of policies since a policy aims to reduce uncertainty for investors that otherwise hinders technology diffusion
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