Giving the Green Light to the Green: Facilitating the integration of variable renewable electricity into the power system

Abstract

Variable renewable energy (VRE) technologies convert stochastic weather flows (e.g. wind and solar) into electricity. They play an essential role in the low-carbon transition of the power sector to achieve the Paris agreement. However, the large-scale integration of VRE technologies into the power system faces challenges. Firstly, the variable outputs of VRE require additional balancing and backup capacity and increased flexible operation of thermal power plants. This results in integration costs, i.e. the costs of adapting the power system to accommodate for increased shares of VRE. Secondly, various support schemes are used to shield VRE investments from market revenue risks. To avoid market distortions and subsidy-dependent pathways, the investment and operation of VRE needs to respond and be increasingly exposed to price signals in the electricity market. However, the current electricity market design does not allow for a substantial share of VRE, because it does not support market participation of VRE and the reduction of its integration costs. This dissertation investigates different options facilitating the integration of VRE into the power system from the aspects of spatial planning, market design and policies. This is done through literature review, scenario analysis, GIS, modelling of VRE outputs and portfolio optimization. Its main findings include: • The variability of VRE outputs can be effectively reduced through geographically diversified portfolios of VRE capacity in a large area, such as China. A higher share of wind in VRE portfolios, than that is envisioned in most climate mitigation scenarios, is better for smoothing variability. Such portfolios are also beneficial to reduce the magnitude of sudden extreme reductions in VRE outputs. • Big market reforms are needed to accommodate the increased share of VRE in the power system. These reforms should focus on changing the pricing settlement rules, increasing the time resolution of trading products, and delaying the gate closure time. A level playing field should be established to safeguard the participation of VRE into the electricity market. • When designing policy instruments to support VRE investments, negative interactions with other policy instruments or the electricity market should be minimized. A comprehensive policy framework to support VRE investments should not be limited to the narrow context of climate and energy policy and the electricity market. For instance, microeconomic policies can have negative impacts on VRE investments through increasing the lending rate.