TY - JOUR
T1 - Price responsiveness of solar and wind capacity demands
AU - Woo, C. K.
AU - Cao, K. H.
AU - Qi, H. S.
AU - Zarnikau, J.
AU - Li, R.
N1 - Funding Information:
The authors declare the following financial interests/personal relationships which may be considered as potential competing interests:C.K. Woo reports financial support was provided by Ford Foundation. C.K. Woo reports financial support was provided by Research Grant Council of the HKSAR Government. Han S. QI reports financial support was provided by Shenzhen Humanities & Social Sciences Key Research Bases. If there are other authors, they declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.This study was partially funded by the Ford Foundation (#134371 and #139746) and the Research Matching Grant Scheme of the Research Grant Council of the Hong Kong Special Administrative Region Government. We thank the editor and four diligent and knowledgeable reviewers for their detailed and constructive comments that have greatly improved our paper's content and exposition. Without implications, all errors are ours.
Funding Information:
This study was partially funded by the Ford Foundation (#134371 and #139746) and the Research Matching Grant Scheme of the Research Grant Council of the Hong Kong Special Administrative Region Government. We thank the editor and four diligent and knowledgeable reviewers for their detailed and constructive comments that have greatly improved our paper\u2019s content and exposition. Without implications, all errors are ours.
Publisher Copyright:
© 2024 Elsevier Ltd
PY - 2024/5
Y1 - 2024/5
N2 - Accurate estimates of the price responsiveness of residential, commercial, and industrial electricity demands are essential for energy policy modelling, integrated resource planning, and determining a competitive wholesale electricity market's generation levels, prices, and capacity investments. Hence, we estimate the own-price elasticities of solar and wind capacity demands of a load serving entity (LSE) that provides retail electricity service, thereby answering two interrelated research questions: (1) does solar capacity demand far exceed wind capacity demand? and (2) are solar and wind capacity demands price-elastic? Inspired by the theory of input demand under input price uncertainty, our innovative methodology integrates (a) wholesale spot energy price forecasts by time of day; (b) pseudo data found by minimizing a LSE's annual risk-adjusted budget for procuring solar and wind capacities; and (c) econometric analysis of (b) to estimate the extent of substitutability between solar and wind capacities and the own-price elasticities of solar and wind capacity demands. Using Texas as an illustrative example, we find that when solar and wind power purchase agreements have similar energy prices, solar capacity demand is approximately four times wind capacity demand. Further, the own-price elasticity estimates are −5.34 for solar capacity demand and −5.65 for wind capacity demand. As a result, solar and wind capacity demands tend to substantially grow (shrink) in response to declining (rising) solar and wind energy prices. This lends support to proposals to raise solar and wind energy prices for mitigating the adverse effects of large-scale variable renewable energy development on an electric grid's efficient operation and system reliability. However, adopting such proposals also slows the grid's pace of decarbonization, thus underscoring the policy and regulatory challenges in the quest for a clean and sustainable electricity future. Hence, our policy recommendation of price managing solar and wind capacity demands is a topic of policy debate that deserves the attention of an electric grid's stakeholders.
AB - Accurate estimates of the price responsiveness of residential, commercial, and industrial electricity demands are essential for energy policy modelling, integrated resource planning, and determining a competitive wholesale electricity market's generation levels, prices, and capacity investments. Hence, we estimate the own-price elasticities of solar and wind capacity demands of a load serving entity (LSE) that provides retail electricity service, thereby answering two interrelated research questions: (1) does solar capacity demand far exceed wind capacity demand? and (2) are solar and wind capacity demands price-elastic? Inspired by the theory of input demand under input price uncertainty, our innovative methodology integrates (a) wholesale spot energy price forecasts by time of day; (b) pseudo data found by minimizing a LSE's annual risk-adjusted budget for procuring solar and wind capacities; and (c) econometric analysis of (b) to estimate the extent of substitutability between solar and wind capacities and the own-price elasticities of solar and wind capacity demands. Using Texas as an illustrative example, we find that when solar and wind power purchase agreements have similar energy prices, solar capacity demand is approximately four times wind capacity demand. Further, the own-price elasticity estimates are −5.34 for solar capacity demand and −5.65 for wind capacity demand. As a result, solar and wind capacity demands tend to substantially grow (shrink) in response to declining (rising) solar and wind energy prices. This lends support to proposals to raise solar and wind energy prices for mitigating the adverse effects of large-scale variable renewable energy development on an electric grid's efficient operation and system reliability. However, adopting such proposals also slows the grid's pace of decarbonization, thus underscoring the policy and regulatory challenges in the quest for a clean and sustainable electricity future. Hence, our policy recommendation of price managing solar and wind capacity demands is a topic of policy debate that deserves the attention of an electric grid's stakeholders.
KW - Load serving entity
KW - Optimal capacity procurement
KW - Price responsiveness
KW - Solar capacity demand
KW - Texas
KW - Wind capacity demand
UR - http://www.scopus.com/inward/record.url?scp=85194959562&partnerID=8YFLogxK
U2 - 10.1016/j.jclepro.2024.142705
DO - 10.1016/j.jclepro.2024.142705
M3 - Article
AN - SCOPUS:85194959562
SN - 0959-6526
VL - 462
SP - 1
EP - 15
JO - Journal of Cleaner Production
JF - Journal of Cleaner Production
M1 - 142705
ER -