The dynamic value of intermittent renewable energy

Intermittent renewable energy sources have significant local air pollution reduction and climate change mitigation benefits. However, their irregular generation creates challenges for integrating these resources into the power grid. Valuing wind and solar power requires addressing both issues, especially in light of the policies and incentives aimed at promoting their large scale adoption. This dissertation values the environmental and economic benefits of wind and solar power by modelling their daily intermittency and interactions with hydropower in California and storage in Texas. In Chapter 2, I use random fluctuations in hourly wind and solar generation in California to estimate how much they reduce emissions of carbon dioxide, sulfur dioxide, and nitrogen oxides. These offsets depend on the direct displacement of high-cost natural gas generators, and on the hydropower reallocation that occurs to the hours with the lowest increase in renewable generation. Solar power daily intermittency causes a shift in hydro from the afternoon to the evening, which increases its emissions offsets since the gas generators displaced in the evening are dirtier than those kept running in the afternoon. In contrast, wind offsets are less sensitive to hydropower reallocation, since wind leads to a substitution of generators with similar emissions intensities. This chapter highlights the importance of accounting for interactions between wind, solar, and hydro capacity in assessing their environmental benefits. While Chapter 2 uses time series econometrics to model the dynamics of hydropower storage and renewable energy, Chapter 3 simulates the interactions between projected utility-scale batteries and emissions regulations for assessing the value of wind and storage in Texas. Wind power can reduce grid-level electricity generation costs and emissions but its large-scale adoption will require electricity storage to deal with intermittency. I model the ERCOT daily electricity market to estimate the value of wind generation, the value of storage capacity (based on hourly arbitrage) and the impact of wind and storage on emissions (CO2, NOx, and SO2) under different policy scenarios combining storage availability and emissions taxes. Wind and storage capacities are complements since wind’s intermittency raises arbitrage benefits, which in turn enhances wind’s value by reallocating power based on wind cycles. Emissions taxes increase net welfare and the value of storage. Taxing emissions leads to a larger welfare gain than just installing the planned storage levels in ERCOT (324 MWh). Under current technology and cost trends, implementing a carbon pricing scheme that delivers stable prices larger than 40 USD/tCO2 can induce wind to supply 30% of the load in Texas.Finally in Chapter 4, I extend the daily model to a weekly planning horizon and find that interday arbitrage requires storage capacities larger than 11,000 MWh. For these large capacities, the value of storage increases since it arbitrages a larger gap between weekend off-peak and weekday peak demands and prices. However, half of the time the battery is filled with less than 50% of its capacity.