The Economics of Power System Transitions

Mort Webster, Karen Fisher-Vanden and Ian Sue Wing

Review of Environmental Economics and Policy, 2024, vol. 18, issue 1, 66 - 87

Abstract: Electricity generated by fossil fuels is dispatchable, meaning that generators can be turned on when needed. By contrast, renewable energy tends to be intermittent because of the variability of natural sources such as wind and sunlight. New approaches are needed to solve the challenges to electricity systems posed by the growing share of variable renewable energy (VRE) in these systems. Specifically, how should the physical power system and markets for electricity be structured to deliver electricity at low cost and reflect consumers’ preferences for reliability? Current power systems have largely achieved these two goals through a competitive market for generation based on marginal cost pricing and through mandated overcapacity to ensure 100 percent reliability to consumers. Decarbonization-induced increases in the share of generation from nondispatchable VRE create operational challenges: ensuring 100 percent reliability in a VRE-dominated system will be costly and inefficient. Preferences for reliability are heterogeneous, as some consumers will insist on 100 percent reliable energy, whereas others may be willing to forgo reliability for lower cost. In this article, we discuss ways to design a power system and electricity market that can address this inefficiency.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/728101 (application/pdf)
http://dx.doi.org/10.1086/728101 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:renvpo:doi:10.1086/728101

Access Statistics for this article

More articles in Review of Environmental Economics and Policy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().