Renewable Power Trades and Network Congestion Externalities

42 Pages Posted: 10 Jun 2020 Last revised: 14 Jan 2021

See all articles by Nayara Aguiar

Nayara Aguiar

University of Notre Dame, Department of Electrical Engineering

Indraneel Chakraborty

University of Miami

Vijay Gupta

University of Notre Dame, Department of Electrical Engineering

Date Written: January 14, 2021

Abstract

Integrating renewable energy production into the electricity grid is an important policy goal to address climate change. However, such an integration faces economic and technological challenges. As power generation by renewable sources increases, power transmission patterns over the electric grid change. Due to physical laws, these new transmission patterns lead to non-intuitive grid congestion externalities. We derive the conditions under which negative network externalities due to power trades occur. Calibration using a stylized framework and data from Europe shows that each additional unit of power traded between northern and western Europe reduces transmission capacity for the southern and eastern regions by 27% per unit traded. Such externalities suggest that new investments in the electric grid infrastructure cannot be made piecemeal. In our example, power infrastructure investment in northern and western Europe needs an accompanying investment in southern and eastern Europe as well. An economic challenge is regions facing externalities do not always have the financial ability to invest in infrastructure. Power transit fares can help finance power infrastructure investment in regions facing network congestion externalities. The resulting investment in the overall electricity grid facilitates integration of renewable energy production.

Keywords: Renewable Energy, Electrical Grid, Network Congestion Externalities.

JEL Classification: Q42, Q48, L94

Suggested Citation

Aguiar, Nayara and Chakraborty, Indraneel and Gupta, Vijay, Renewable Power Trades and Network Congestion Externalities (January 14, 2021). Available at SSRN: https://ssrn.com/abstract=3613293 or http://dx.doi.org/10.2139/ssrn.3613293

Nayara Aguiar

University of Notre Dame, Department of Electrical Engineering ( email )

228A Cushing Hall
Notre Dame, IN 46556-5646
United States

HOME PAGE: http://https://engineering.nd.edu/profiles/ngomesdeaguiar

Indraneel Chakraborty (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Vijay Gupta

University of Notre Dame, Department of Electrical Engineering ( email )

275 Fitzpatrick Hl Engrng
Notre Dame, IN 46556
United States
(574) 631 2294 (Phone)

HOME PAGE: http://https://www3.nd.edu/~vgupta2/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
568
PlumX Metrics