Buffering Volatility: Storage Investments and Technology-Specific Renewable Energy Support

CER-ETH – Center of Economic Research at ETH Zurich, Working Paper 19/310, January 2019

25 Pages Posted: 7 Feb 2019

See all articles by Jan Abrell

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE)

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Clemens Streitberger

ETH Zürich - Department of Management, Technology and Economics

Date Written: January 8, 2019

Abstract

Mitigating climate change will require integrating large amounts of highly intermittent renewable energy (RE) sources in future electricity markets. Considerable uncertainties exist about the cost and availability of future large-scale storage to alleviate the potential mismatch between demand and supply. This paper examines the suitability of regulatory (public policy) mechanisms for coping with the volatility induced by intermittent RE sources, using a numerical equilibrium model of a future wholesale electricity market. We find that the optimal RE subsidies are technology-specific reflecting the heterogeneous value for system integration. Differentiated RE subsidies reduce the curtailment of excess production, thereby preventing costly investments in energy storage. Using a simple cost-benefit framework, we show that a “smart” design of RE support policies significantly reduces the level of optimal storage. We further find that the marginal benefits of storage rapidly decrease for short-term (intra-day) storage and are small for long-term (seasonal) storage independent of the storage level. This suggests that storage is not likely to be the limiting factor for
decarbonizing the electricity sector.

Keywords: Renewable Energy, Electricity, Volatility, Intermittency, Storage, Technology-specific Regulation, Subsidies, Energy Policy, Climate Policy

JEL Classification: C63, Q42, Q48, Q54

Suggested Citation

Abrell, Jan and Rausch, Sebastian and Streitberger, Clemens, Buffering Volatility: Storage Investments and Technology-Specific Renewable Energy Support (January 8, 2019). CER-ETH – Center of Economic Research at ETH Zurich, Working Paper 19/310, January 2019, Available at SSRN: https://ssrn.com/abstract=3321911 or http://dx.doi.org/10.2139/ssrn.3321911

Jan Abrell (Contact Author)

ETH Zürich - Centre for Energy Policy and Economics (CEPE) ( email )

8092 Zurich
Switzerland

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

Clemens Streitberger

ETH Zürich - Department of Management, Technology and Economics ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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