Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - RES INV (Accommodate Renewable Energy in Interconnected Electricity System: an Economic Perspective)

Teaser

The first objective of my research is to investigate the role of renewable generation and of transmission networks in meeting the EU environmental targets at minimum cost. I investigated the impact of renewables on electricity prices and their profitability of up to 2030 and I...

Summary

The first objective of my research is to investigate the role of renewable generation and of transmission networks in meeting the EU environmental targets at minimum cost. I investigated the impact of renewables on electricity prices and their profitability of up to 2030 and I am currently working on a related project on the effects of ETS and coal phase out on the European energy system. The second objective of my work is to investigate the impact of demand on the EU electricity market. I analysed how loss averse consumers are the key to redesign the electricity market, as producers and retailers should revise their strategy to sell electricity at the real time. Moreover, I investigated the impact of gasoline taxation on cars’ efficiency and investigate the determinants of the selling price of electric vehicles.
The European Union has set ambitious greenhouse gas emissions targets for 2030. The bulk of the decrease in greenhouse gas emissions will take place through an extensive adoption of renewable and intermittent electricity such as solar and wind as well as the adoption of more efficient vehicles in the transport sector.
Society will highly benefit from decarbonisation, but it is crucial to establish the costs associated with the measures required to achieve this target. My research focus on that, and establishes potential risks as well as measures to prevent undesirable outcomes.

Work performed

The first strand of my research investigates the effects of renewable penetration in the European electricity market in 2030. My analysis shows that renewable sources have different degrees of profitability and should be adopted in different countries. In particular, solar PV is profitable in southern Europe, whereas wind onshore is profitable in almost all the countries. Wind offshore is my analysis doesn’t result profitable under all the investment cost assumptions undertaken.
My results have been discussed in conferences and seminars and published in a working paper submitted for publication. In order to better exploit the potential of my analysis I joined for three months the International Energy Agency (IEA). During this time, I focused on the effects of increased transmission networks in the Union. Results of this research have been published in the 2018 edition of the World Energy Outlook and show that efficient use of interconnection reduces system costs significantly. Moreover, investments in renewable generation should be undertaken considering other existing targets, such as the coal and nuclear phase out planned by several countries.
Working on the European market, I\'ve also investigated the impact of expansions in the transmission network and the effect of storage. My analysis shows that storage presents significant gains for consumers and for renewable producers, but the magnitude of these effects crucially depends on the costs associated with batteries and their availability.
Another working paper I wrote during my fellowship analyses the relation between wind generation and electricity prices. My results show that wind generation reduces the spot prices, increases balancing costs but the final effects (taking the subsidies paid by the consumers to finance the investment in wind turbines) is positive. Also this work has been presented in conferences and seminars.
Finally, I am currently working on a project that analyses the relation between co2 emissions, carbon pricing and renewable targets. Preliminary results show that Germany and Poland are pivotal in Europe to achieve decarbonisation: emission abatement in the power sector may be reduced only if these two countries seriously commit to reduce coal generation. A working paper with the results of this analysis will be released soon.
The second strand of my research focus on the role of consumers in the electricity markets. There is a great debate in the Union about the role of consumers and the impact on utilities of changes in the electricity tariffs: this part of my analysis investigate several aspects related with consumers’ behaviour and choices.
In a first work (released as a working paper and presented in several seminars and conferences) I focus on the relation between loss averse consumers and their preferences for a continuous-time tariffs. This preference changes the choices that both producers and retailers should undertake in order to sell electricity to the consumers.
In another work, I focus on the determinants behind the choice of efficient vehicles and the impact of a new gasoline taxation. The rationale behind this work is that taxation should follow the gasoline price, in order to correctly incentive consumers to buy fuel-efficient cars. Finally, always in the transport sector, I am currently working on electric vehicles, identifying the determinants of the price of electric cars in several European countries. In particular, I am focusing on the role of incentives and bonus given by different states in order to check which proportion of these policies is passed through the consumers by increasing the selling price.
The last two works are still work in progress, but working papers will be released soon and have been discussed in seminars and conferences during the last year.

Final results

My work has improved the existing literature in several ways.
First, my results show how renewables affect electricity prices not only in the spot but also in the balancing markets and highlight the overall benefits for the consumers. Second, my research shows where renewable resources should be placed and estimates their profitability at a country level. There are no works so far in this field and the theme is highly relevant at the European level. Third, my analysis of the electricity markets investigates the effects of changes in tariffs currently under discussion in several European member states. As consumers should be in the centre of the analysis, European member states are discussing about changing tariffs from fixed to time-continuous. My analysis discuss the effects of these changes for both genreators and retailers in presence of loss-averse consumers.
All these points are related to market design problems that should be addressed at the EU level and, at the best of my knowledge, are the first works on these issues.
On the consumers and transport sectors, the discussion of a new gasoline taxation as well as the determinants of the prices of electric vehicles are particularly relevant as the policies to reduce gas emissions (and transport emissions in particular) are a key priority in the EU agenda. My work develops new models and adopts innovative methods to give original answers to all these questions.
My engagement with both policy makers and other economist in conferences and seminars guarantees that the results of my research will not be just read by academics but will be also understood and used by politicians and other stakeholders. In particular, I’ve met at conferences several members of the European Commission and EU Parliament and discuss my results with them also receiving very useful feedbacks for my research. In order to keep a high level of engagement with several institutions I will also use the expertise I got during my fellowship to actively build a research and policy network and to submit new research ideas in EU research calls.