Decentralized energy supply and electricity market structures

Research, Preprint English OPEN
Weber, Christoph ; Vogel, Philip (2005)
  • Publisher: University of Duisburg-Essen, Chair for Management Science and Energy Economics Essen
  • Subject: decentralized power production | electricity markets | L94 | L98 | Q40 | Q42 | O33 | electricity markets, decentralized power production, demand side management | demand side management
    • jel: jel:L94 | jel:L98 | jel:Q42 | jel:O33 | jel:Q40
      ddc: ddc:330

Small decentralized power generation units (DG) are politically promoted because of their potential to reduce GHG-emissions and the existing dependency on fossil fuels. A long term goal of this promotion should be the creation of a level playing field for DG and conventional power generation. Due to the impact of DG on the electricity grid infrastructure, future regulation should consider the costs and benefits of the integration of decentralized energy generation units. Without an adequate consideration, the overall costs of the electricity generation system will be unnecessarily high. The present paper analyses, based on detailed modelling of decentralized demand and supply as well as of the overall system, the marginal costs or savings resulting from decentralized production. Thereby particular focus is laid on taking adequately into account the stochasticity both of energy demand and energy supply. An efficient grid pricing system should then remunerate long-term grid cost savings to operators of decentralized energy production or/and charge long-term additional grid costs to these operators. With detailed models of decentralized demand and supply as well as the overall system, the marginal costs or savings resulting from decentralized production are determined and their dependency on characteristics of the grid and of the decentralized supply are discussed.
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