2017 ASSA/AEA Annual Meeting, Chicago, 6-8th January Frank Obermüller Build wind capacities at windy locations? Assessment of system optimal wind locations under feed-in tariffs 2017 ASSA/AEA Annual Meeting, Chicago, 6-8th January Frank Obermüller This presentation: Close the gap between meteorological side (i.e. high resolution wind data) and energy economics (i.e. market value of wind or the impact to the electricity market)

Motivation Aim for market integration of renewables IEA Report (June 2016): „[Renewable subsidy] plans should be based on the long-term value of VRE to the power and wider energy system.“ “Next-generation approaches need to factor in the system value of electricity from wind and solar power” Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Motivation Value of a wind turbine to the market Market value of wind production: with:     Hirth: “The market value of variable renewables: The effect of solar wind power variability on their relative price." Energy economics 38 (2013) Elberg, Hagspiel: “Spatial dependencies of wind power and interrelations with spot price dynamics.” European Journal of Operational Research 241 (2015) Market value Expected market value of wind [EUR/MWh] Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Motivation But: Uniform pricing can be inefficient! Market value of wind production: with:     Several electricity markets have uniform pricing, e.g. Europe In uniform pricing, grid situations may not be internalized sufficiently This can lead to inefficient capacity allocations and production situations Improvement: System value of wind production: with:     Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Methodology Nodal Electricity Market Model Minimization of total system costs Electricity balance restriction (supply=demand) Model and input data are open source Website: www.Pypsa.org Some model facts: Research Focus on Germany Uniform pricing regional different wind situations high share of installed wind capacities 585 nodes 852 lines DC-loadflow model Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Methodology Nodal Electricity Market Model Additional input: High-resolution wind data Adding high resolution wind energy data to the nodal electricity market model. Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Results System value of regional wind production Regional System Value of Wind (Nodal pricing)   Histogram Wind value [100%] Frequency The Regional System Value of Wind Production could have structural breaks, e.g., as in Germany *) Note: Colormap is restricted to a minimum of 80% for comparison reasons Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Results Comparison: System Value vs. Market Value Regional System Value of Wind (Nodal pricing) Regional Market Value of Wind (Uniform pricing)     The regional value of wind is strongly dependent on the pricing regime (and thus on the grid situation) Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Results Comparison: Regional market profits   Market profit under Nodal pricing Market profit under Uniform pricing Can be considered as efficient benchmark since grid situation is internalized to market profits Uniform pricing may favor regions which are not system optimal and, e.g., increase grid congestions The pricing regime (nodal vs. uniform) influences the regional market profits. Under uniform pricing, inefficient allocations may be incentivized Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Results Comparison: Nodal market profit vs. Fixed FiT Market profit under Nodal pricing Wind profit of Fixed Feed-in Tariff (for 1 MW turbine, 1 year) (for 1 MW turbine, 20 years) A Fixed Feed-in Tariff (without a regional component) does not sufficiently consider the regional value of wind and may favor different (sub-optimal) wind locations Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Conclusion Contribution to existing research: Quantification of (1) regional system values, (2) regional market values, and (3) fixed feed-in remunerations for German wind production Findings: The Regional System Value of Wind Production could have structural breaks, e.g., as in Germany The pricing regime (nodal vs. uniform) influences the regional market profits. Under uniform pricing, inefficient allocations may be incentivized A Fixed Feed-in Tariff (without a regional component) does not sufficiently consider the regional value of wind and may favor different (sub-optimal) wind locations Conclusion: A well-designed subsidy scheme needs to incorporate the regional system value This can be achieved, e.g., via nodal pricing and a market price component A fixed feed-in tariff may set wrong capacity allocation incentives Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Exploring Energy Markets – Enhancing Decisions! Frank Obermüller frank.obermueller@ewi.research-scenarios.de EWI – Institute of Energy Economics at the University of Cologne ewi Energy Research & Scenarios gGmbH Alte Wagenfabrik Vogelsangerstraße 321 D-50827 Cologne Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Backup / Appendix Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

Backup Reimbursements of fixed feed-in tariff   Wind profit of Fixed Feed-in Tariff 1 Modelled wind production data per turbine 2 Calculated reimbursements based on Fixed Feed-in Tariff Of an exemplary wind turbine: 1 MW Turbine 66m Hub-Height 2380 m2 swept area Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller