Energy Storage and Renewable Energy

46 Pages Posted: 1 Jul 2014

See all articles by Tunc Durmaz

Tunc Durmaz

Norwegian School of Economics (NHH) - Department of Economics

Date Written: May 15, 2014

Abstract

I consider an economy with fossil fuel and renewable energy and energy storage, and search for the conditions that lead to welfare improvements when energy is stored. I then solve for the optimal decision rule and analyze the long-run tendencies of the economy-energy variables. The findings are threefold. First, energy storage is fostered by the convexity of the marginal utility (prudence), the marginal cost function for fossil fuel energy, and the degree of intermittency. Second, considering a low penetration of renewable energy to the power grid, energy storage is not welfare improving if the fossil fuel energy cost function is linear. Third, energy storage creates an added value to renewable energy investments when actively used. By showing the influence that energy storage can have on energy generation and investment decisions, I hope that the current work can be influential in a more generous treatment of energy supply in future energy-economy-climate models.

Keywords: Energy storage; Fossil fuel energy; Renewable energy; Precautionary savings; Collocation method; Monte Carlo simulations

JEL Classification: Q21, Q41, Q42, Q47, C61, C63, G31

Suggested Citation

Durmaz, Tunc, Energy Storage and Renewable Energy (May 15, 2014). NHH Dept. of Economics Discussion Paper No. 18/2014. Available at SSRN: https://ssrn.com/abstract=2460676 or http://dx.doi.org/10.2139/ssrn.2460676

Tunc Durmaz (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

HOME PAGE: http://www.nhh.no/en/research-faculty/department-of-economics/sam/cv/durmaz--tunc.aspx

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