Teaching Microeconomics ofRenewable Energy

ISEE ConferenceReykjavík, IcelandAugust 13, 2014

David TimmonsUniversity of Massachusetts Boston

david.timmons@umb.edu

kW = 9.8ηQH

Dam functions: 1. create head 2. store water (store energy)

Renewable Energy: Physical Basis

photo: Orkustofnun, Iceland National Energy Authority

W = 0.5 ρAV3

Renewable Energy: Physical Basis

Adapted from Murphy and Hall (2010)

Renewable Energy Cost Factors: Net Energy Ratios

Energy Source Net Energy

Ratio Reference Oil (global) 35 (Yandle, Bhattarai and Vijayaraghavan 2004) Natural gas 10 (Hall 2008) Coal 80 (Cleveland 2005) Shale oil 5 (Hall 2008) Nuclear 5-15 (Lenzen 2008; Murphy and Hall 2010) Hydropower >100 (Hall 2008) Wind 18 (Kubiszewski, Cleveland and Endres 2010) Photovoltaic cells 6.8 (Battisti and Corrado 2005) Biomass: ethanol (sugarcane) 0.8 – 10 (Hall, Cleveland and Kaufmann 1986),(Goldemberg 2007) Biomass: ethanol (corn-based) 0.8 – 1.6 (Farrell, Pelvin and Turner 2006) Biomass: biodiesel 1.3 (Hall, Cleveland and Kaufmann 1986) Biomass: farmed willow chips 55 (Keoleian and Volk 2005)

Nominal Capacity

(MW)

Capital Cost

($/kW)

Assumed Capacity Factor

Capital $/Expected1

kW Natural gas: combined cycle 620 $917 90% $1,019 Coal: advanced pulverized fuel 650 $3,246 90% $3,607 Hydroelectric 500 $2,936 75% $3,915 Nuclear: dual unit 2,234 $5,530 90% $6,144 Wind: onshore 100 $2,213 25% $8,852 Biomass combined cycle 20 $8,180 90% $9,089 Wind: offshore 400 $6,230 35% $17,800 Solar: photovoltaic 150 $3,873 20% $19,365 Solar: thermal electric 100 $5,067 20% $25,335

1 For comparing sources with different capacity factors, we define $/expected kW as ($/kW)/(capacity factor), or the capital cost to produce the same amount of electricity as one kW of capacity running continuously.

Adapted from EIA (2013)

Renewable Energy Cost Factors: Capital Intensity

Renewable Energy Cost Factors: Intermittency

pumped storage: Northfield, Massachusetts

source: EIA (2014)

Renewable Energy Supply

source: Jacobson and Delucchi (2011)

tera

watt

s (T

W)

2012

$/k

Wh

2030 est. demand = 17 TW

P

Q

MCH

A. Hydropower: low initial cost, but limited quantity

Microeconomic Concepts: marginal cost

Renewable Energy Supply

P

Q

MCH P

Q

MCW

A. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

Microeconomic Concepts: marginal cost

Renewable Energy Supply

P

Q

MCH P

Q

MCW P

QA. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

C. Solar PV: highest cost, unlimited quantity

Microeconomic Concepts: marginal cost supply elasticity

Renewable Energy Supply

MCPV

P

Q

MCH P

Q

MCW P

Q

P

Q

MCagg

A. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

C. Solar PV: highest cost, unlimited quantity

D. Aggregaterenewable supply, and demand

MCPV

Microeconomic Concepts: marginal cost supply elasticity aggregate supply

Renewable Energy Supply

P

Q

MCH P

Q

MCW P

Q

P

Q

D

MCagg

A. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

C. Solar PV: highest cost, unlimited quantity

D. Aggregaterenewable supply, and demand

Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium

Renewable Energy Supply

MCPV

P

Q

MCH P

Q

MCW P

Q

P

Q

D

MCagg

A. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

C. Solar PV: highest cost, unlimited quantity

D. Aggregaterenewable supply, and demand

Renewable Energy Supply

Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium equimarginal principle

MCPV

P

Q

MCH P

Q

MCW P

Q

P

Q

P

Q

MCC

D

MCagg

A. Hydropower: low initial cost, but limited quantity

B. Wind: higher cost, higher quantity

C. Solar PV: highest cost, unlimited quantity

E. Conservation:high quantity available at MC of solar PV

D. Aggregaterenewable supply, and demand

Renewable Energy Supply

Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium equimarginal principle

MCPV

CoalHydro Power Geothermal Peat

0

20

40

60

80

100

120

140

160

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

PJ (petajoule)

1 petajoule = 1015 joule = 0,278

TWh

Source: Orkustofnun 2004

Geothermal Heating in Iceland

Oil

2000

CoalHydro Power Geothermal Peat

0

20

40

60

80

100

120

140

160

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

PJ (petajoule)

1 petajoule = 1015 joule = 0,278

TWh

Source: Orkustofnun 2004

Geothermal Heating in Iceland

0%

20%

40%

60%

80%

100%

1900 1920 1940 1960 1980 2000

Proportional contribution of sources

Oil

2000

Geothermal Heating in Iceland

Geothermal Heating in Iceland

Ísafjörður

District Heat Energy Sources 2008

electricity, 86%

oil, 4%District Heating SystemÍsafjörður, IcelandPopulation: 2,600

Midtown District (Skutulsfjardareyri)

Southern District (Holtahverfi)

incinerator plant

incinerator, 10%

P

MCrenewable1

Time

MCfossil

t1

Renewable Energy Transition Dynamics

t2

Renewable Energy Transition Dynamics

P

Time

MCfossil

MCrenewable1

t1

MCrenewable2

MCrenewable2

SMCfossil

t2

Renewable Energy Transition Dynamics

P

Time

MCfossil

t3