Decarbonization and the transition to renewable energy sources (RES) will increase the volatility and frequency of energy fluctuations and the cost of hedging losses. Economists from MIT and The Brattle Group, using the Texas energy reform model until 2050, studied the consequences of the energy transition and state the need to revise the usual tariff schemes. We are talking about the separation of separate service and investment payments from tariffs with the transfer of consumption management to energy companies – and about a new form of cross-subsidization, in which the burden of peak energy prices will fall on the industry, and the inconvenience of the lack of capacity on the population.
Darik Mallapragada, Christian Junge, Cathy Xin Wang, Paul Yoskou, Richard Schmalensee (MIT) and Johannes Pfeifeiffeifife (economist at The Brattle Group) examines the risks of electricity consumers in a decarbonized economy. The authors used Texas power expansion models until 2050 to illustrate the range of wholesale prices in future renewable energy networks.
Tighter restrictions on emissions and an increase in the share of renewable energy sources will dramatically increase the frequency and range of price fluctuations in the energy sector.
During oversupply hours, prices will drop to near zero, but price peaks will also rise and become more frequent, due to the need to cover the higher total cost of the grid. The prices for capacity at peak loads due to the rise in the cost of gas generation (it compensates for the supply “gaps”) due to emission restrictions may quadruple from the current ones and more.
The balance of supply and demand will also change – right up to the refusal of individual consumers from purchases during periods of high prices and forced outages of up to 25% of the load during high demand. According to the researchers, although this distorts prices, reduces energy market revenues and disorients investors in the industry, due to the high volatility in a decarbonized economy, it is not possible to abandon them, and moreover, the current imperfect mechanisms for paying for the capacity reserve will have to be fundamentally revised towards strengthening …
This, in turn, will make the tariff revision inevitable.
Stimulating electrification and decarbonization will require keeping retail electricity prices low – and removing additional capacity charges from the tariff. The investment premium and payment for stabilization of the network, according to the authors of the work, should become the subject of separate contracts with the consumer. At the same time, such costs, in the authors’ view, will depend on the type of consumer and will be fixed only in the short term, responding to long-term demand models.
To manage demand, it is proposed to use mechanisms to reduce consumption in the networks at a high wholesale price. The authors see it as the most viable solution to conclude contracts with the population and small businesses for the supply of energy at relatively predictable prices in exchange for automated management of everything that can work in a flexible schedule – including household appliances, charging for electric vehicles, heating, ventilation, air conditioning, etc. that as a result, researchers come to an analogue of cross-subsidization, when the industry pays discounts for the population at the expense of increased tariffs. After the energy transition, the burden of high spot prices during peak periods will completely fall on large consumers, providing relative price stability to the rest – however, in addition to inefficiency and the negative impact of crossroads on investment, this will make supplying small consumers on a leftover basis a common problem of sustainable energy.