potential energy sources - syracuse university...potential energy sources •solar –solar...

Potential Energy Sources• To understand the potential of renewable energy for electricity generation, it is important to understand how the electric grid works– Electricity cannot be stored. What goes on the grid must match what comes off

– Because of this, wholesale prices can vary by a factor of 10 or more within a given day

– Balancing authorities ensure electricity demand and supply are balanced (e.g. New York Independent System Operator (NYISO))

• Calculate who can provide the power needed at lower cost• Have plants adjust every five minutes to keep the system balanced• Use weather forecasts to try to project production from wind and solar

David Popp

Potential Energy Sources• Two types of generation sources:

– Dispatchable: operator has temporal control over. Can decide when to shut off or turn on.

– Intermittent: Production varies due to exogenous factors, such as amount of wind blowing.

• Generation is out of control of the operator• However, these plants can be shut down easily, so there is an upper limit on generation

David Popp

Potential Energy Sources• Even when the owner has control, some plants can be

switched on and off more quickly than others.– Ramping rates: how quickly plants can change the level of output.– There are also differences in often the plant must shut down for

required maintenance.– Flexible sources with rapid ramping ability include:

• Gas‐fired peaker plants– Low fuel efficiency, but are flexible– Also have low start‐up costs

• Hydroelectric– System is designed to meet demand extremes. Some peaker plants

may only run a few days a years.– Levelized cost of plants that will be run most frequently when demand

is high must be adjusted because the power produced is more valuable

• If used during periods of peak demand, wholesale prices of electricity will be higher

David Popp

Potential Energy Sources• Generation costs

– Costs are typically measured using levelized cost of electricity• Levelized cost is the constant price for power that would equate the net present value of revenue from the plant’s output with the net present value of the cost of production.

– Accounts for the fact that many of the initial costs are up‐front capital costs, particularly for renewables.

• Key assumptions that lead to different estimates:– Inflation rates– Real interest rates– How much the generator will be used– Productivity of the generator

» E.g. how much will it be used and how much electricity will it produce

» Future generation particularly relevant for renewables, as may depend on quality of the site

– Future input costs (particularly fuel)– Future market prices

David Popp

Source: Data from International Renewable Energy Agency, Renewable Energy Costs in 2017. Fossil fuel range in gray

Levelized Cost Estimates

Potential Energy Sources• Limitations to levelized cost estimates

– Levelized cost of plants that will be run most frequently when demand is high must be adjusted because the power produced is more valuable

• If used during periods of peak demand, wholesale prices of electricity will be higher

David Popp


– Intermittent sources are the least dispatchable• Generation is out of control of the operator• Thus, the time of day affects the value of power generated

– Solar produced during day, which coincides with peak demand» On January 20, 2015, Germany produced just 2.5 GW of electricity from solar and wind. Consumed 77 GW that day

» In early June 2015, produced 42 GW from solar and wind• Because marginal cost of renewables is 0, it is offered to wholesale markets at very low costs

• Thus, high wind production pulls down wholesale costs, hurting other producers

– Because coal is cheaper than gas, gas turbines in Germany sit idle while coal production has increased

David Popp

Source: California ISO, “What the duck curve tells us about managing a green grid”


– Competition from other sources has hurt nuclear power• Nuclear can also place low bids, because most costs are fixed costs

– However, because of these fixed costs, note that nuclear’slevelized costs are larger

– Competition from natural gas and wind is forcing nuclear plants to retire early

» Some states, such as NY, are thus considering subsidizing nuclear power plants to compensate them for producing zero‐carbon electricity

• Nuclear supporters argue that other carbon‐free sources, such as wind and solar, benefit from subsidies

David Popp

Potential Energy Sources• Policy question: should households be rewarded for distributed generation– Distributed generation is producing electricity at the consumer site, such as with solar PV panels

– Electricity generated reduces the consumer’s bill, since they take less power off the grid

– Should they also be paid for any surplus power that they contribute to the grid?

David Popp

Potential Energy Sources• Wind

– Wind is now competitive in favorable locations– Capacity has grown quickly

David Popp

Potential Energy Sources• Wind

– Onshore wind is now competitive in favorable locations– Capacity has grown quickly– Issues for expansion

• Continued cost reductions• Understanding extreme wind conditions, including lower wind speeds• Integrating wind turbines to the electric grid• New transmission lines may be needed in some areas, because most productive sites aren’t near population centers

• Are there enough acceptable sites?– Good sites have sufficient wind or solar resources, are near where energy demanded (to avoid transmission losses) and are not ruled out politically.

• Intermittent nature• Improvement of offshore wind turbines

– Costs of installation are higher

David Popp

Potential Energy Sources• Solar

– There are two types of solar: • Solar photovoltaic (PV)

• Concentrated solar (a/k/a solar thermal)– Can heat steam, allowing them to store power


– Solar traditionally has been the most expensive of currently used renewable sources, but PV costs have fallen


– Solar traditionally has been the most expensive of currently used renewable sources, but PV costs have fallen

• Primarily due to lower module costs

– Solar thermal costs still high, and fewer suitable sites– Storage of solar energy remains a technical challenge– As with wind, are there enough acceptable sites?

– Discuss: what made solar energy R&D successful?

David Popp

Potential Energy Sources• Energy Storage

– Because wind and solar are intermittent sources, they cannot fully power the electric grid unless power can be stored

• While costs are falling, energy storage is still expensive• Thus, most renewable sources are not paired with energy storage

David Popp

Potential Energy Sources• Energy Storage Techniques

– Pumped hydro storage• Currently lowest cost• Globally, most energy storage today uses pumped hydro, but future expansion will be limited

– Requires appropriate geography– Potential environmental effects of building new dams

David Popp

Potential Energy Sources• Energy Storage Techniques

– Batteries• Most often use lithium‐ion batteries

– Short‐duration (≈30 minutes, to smooth spikes in power grid)– Long‐duration (for storing intermittent power for later use)

• Most commonly used energy storage in US• Costs have fallen dramatically since 2010• Barriers to battery development:

– Safety concerns (e.g. overheating)– Patchwork of local regulations– New materials needed to get costs lower

David Popp

Technological Change & the Environment

• While penetration of renewable energy sources is growing, achieving significant reductions in carbon emissions requires further development and deployment

• Innovation is needed to:– Reduce the cost of existing technologies– Develop new breakthrough technologies– Develop complementary technologies (e.g. grid management, energy

storage) to better integrate intermittent renewables into transmission grids

• Thus, considering how policy can promote innovation on clean technologies is important– Until the past few years, energy R&D efforts have remained relatively flat

since the 1970s

David Popp


• Technological change proceeds in three stages:– Invention: an idea must be born– Innovation: new ideas are then developed into commercially viable products

• Often, these two stages of technological change are lumped together under the rubric of research and development (R&D)

– Diffusion: to have an effect on the economy, individuals must choose to make use of the innovation

David Popp


• Technological change is uncertain– We don’t know whether research will be successful, or which projects will be successful

– This suggests that a diversified strategy is desirable• “Picking winners” can be costly

David Popp

Technological Change & the Environment• At all three stages, market forces provide insufficient incentives for the development and diffusion of environmentally‐friendly technologies– Environmental Externalities

• Addressed by environmental policy (e.g. demand‐pull policies)

David Popp

Technological Change & the Environment• At all three stages, market forces provide insufficient incentives for the development and diffusion of environmentally‐friendly technologies– Environmental Externalities– Knowledge as a Public Good

• New technologies must be made available to the public for the inventor to profit

• When this happens, some or all of the knowledge that makes up the invention also becomes available to the public.

• Public knowledge may lead to knowledge spillovers—additional innovations, or even to copies of the current innovations, that provide benefits to the public as a whole, but not to the innovator

• Addressed by science and technology policy (e.g. technology‐push)• May be general (IP) or specific (subsidies for renewable R&D)

David Popp


• Implications:– Underprovision of R&D

• Firms invest in R&D until the marginal private rate of return equals the marginal cost

• Thus, even if environmental externalities are corrected, there will still be insufficient R&D

– Opportunity costs are important• This high social rate of return is true for all R&D, not just environmental R&D

• Thus, if we design policy to enhance environmental R&D, we must consider where those resources come from

David Popp

General Innovation Policies• Because of the public goods nature of knowledge, government policies are used to foster invention and innovation:– Intellectual property rights (e.g. patents, copyrights)

• Give inventors a temporary monopoly, which enables them to capture more of the returns to their invention

– In return, the patent document makes the invention public– As such, not every inventor chooses to patent an invention

• Because of the temporary monopoly, patents encourage innovation, but slow diffusion

David Popp

General Innovation Policies• Because of the public goods nature of knowledge,

government policies are used to foster invention and innovation:– Government R&D funding

• The government can provide research funding to firms and universities, or can perform research itself in government laboratories

– Many of the government laboratories are for the Department of Energy (DOE)

• 2015 Data – Federal R&D funding $120.9 billion (15.7% of total US R&D)

» $35.7 b performed directly by govt.» $27.0 b performed by industry» $18.3 b performed by FFRDCs» $33.5 b performed by universities» $6.2 b performed by nonprofits

David Popp

General Innovation Policies• Because of the public goods nature of knowledge, government policies are used to foster invention and innovation:– Government R&D funding

• Government funding gives the government more control over the type of R&D done.

• Government funding is particularly useful when spillovers are large– For example, basic research that cannot be patented and/or embodied in a proprietary product

• Basic research can complement research done by firms– For example, DOE labs often include public/private partnerships to help commercialize new technologies

David Popp

General Innovation Policies• Because of the public goods nature of knowledge, government policies are used to foster invention and innovation:– Tax credits

• Tax credits lower the cost of R&D for firms• However, they give the government less control over the projects done

• Firms will still choose to do the most profitable projects first, so tax credits are unlikely to stimulate basic research

David Popp

potential energy sources - syracuse university...potential energy sources •solar –solar...

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