Renewable energy expansion under taxes and subsidies: A transmission operator’s perspective

Abstract

In light of increasing pressure to curb greenhouse gas emissions, many countries have focused on the development of strategies that encourage renewable generation in liberalised energy markets. This paper presents a modelling assessment of a renewable-driven expansion of the transmission system infrastructure that accounts for decentralized energy market settings. The mathematical optimisation problem formulation involves a bi-level model in which a welfare-maximizing transmission system operator makes investments in transmission lines at the upper level while considering power market dynamics at the lower level. To account for deregulated energy market structure, we assume that the generation companies at the lower level make generation capacity investment decisions as price-takers in perfect competition. Considering alternative levels for a transmission infrastructure expansion budget, carbon emission taxes and monetary incentives for renewable generation capacity expansion, we study how alternative compositions of these three factors affect the share of renewable generation in the total generation mix. We apply the proposed modelling assessment to an illustrative three-node instance and a case study considering a simplified representation of the energy system of the Nordic and Baltic countries. The results suggest the limited efficiency of three renewable-driven measures when applied individually. Nevertheless, applied in composition, these three measures demonstrated a positive impact on Nordics’ and Baltics’ energy system welfare, VRE share and total generation amount. However, the amplitude of this impact differs depending on the composition of values used for three renewable-driven measures.

Nikita Belyak

Postdoctoral Researcher

Nikita Belyak is a Doctoral Candidate at the department of Mathematics and Systems Analysis of Aalto University.

Fabricio Oliveira

Associate Professor of Operational Research

Fabricio Oliveira is an Associate Professor of Operational Research in the Department of Mathematics and Systems Analysis.