Essays on the Analysis of Electricity Markets and Policy: Renewable Electricity and Demand Response
2015-05
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Essays on the Analysis of Electricity Markets and Policy: Renewable Electricity and Demand Response
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2015-05
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This dissertation focuses on renewable energy policy in the US and demand-side management in US regional electricity markets. Considering the existing state and the federal policies that promote renewable electricity generation, the analyses in this dissertation seek to explain the impact of those policies on investment in renewable energy technologies as well as the impact of more renewable generation on the markets and electricity consumers' behavior. This dissertation consists of three essays employing optimization and empirical analysis techniques to examine the relationships among renewable electricity generation, electricity demand and policy. The first essay in this dissertation provides an understanding of the impact of uncertainties about renewable energy policy on wind energy investments. It considers the uncertainty about future state and federal policies that subsidize wind projects and how this uncertainty affects decisions to invest in wind energy. A real-options theory is employed to model the investment decisions of a firm to understand how irreversible investment in wind energy depends on federal subsidy uncertainties (the Production Tax Credit, or PTC) and price uncertainty in renewable energy markets. Results contribute to our understanding of the impact of the federal and state policy decisions on the profitability threshold to commit to a renewable energy investment. One of the major findings is that the uncertainty about the federal PTC policy lowers the profitability threshold to invest in wind energy and stimulates wind installations. The PTC incentive matters to investors in wind projects, and permanently removing the federal PTC policy may reduce future investment projects in the US. On the other hand, more stringent state RPS policies that would increase the demand for Renewable Electricity Credits (RECs) would tend to encourage wind investment. The second essay examines consumers' response to electricity price changes in the retail and wholesale markets in the Midcontinent Independent System Operator (MISO) and it provides a comparison between the retail electricity market, in which industrial consumers do not observe real-time price changes and pay a pre-determined flat rate, and the wholesale electricity market, in which consumers are able to change their electricity consumption based on real-time price changes. I estimate the demand for electricity by industrial customers using a two-stage model. Results show that industrial price elasticities in retail markets vary across states in the Midwest. Price elasticity estimates show that consumers in the wholesale market are less responsive to price changes than are consumers in the retail market. The third essay provides an assessment of residential solar PV penetration and its implications for future electricity demand in the US. More specifically, this essay addresses the question of how rooftop solar penetration affects the residential electricity demand and how residential PV penetration affects electricity sales. Further, it examines the impact of the state policies (i.e., state Net Energy Metering policy, state regulatory status) on residential PV capacity additions. Results of the empirical analysis show that state policies promote adoption of rooftop solar in the residential sector. This causes a significant reduction in residential electricity demand from electric utility companies. Ultimately, results show that residential customers become more responsive to price changes with more solar electricity generation. States with higher scores for their encouragement of solar energy will see more dramatic reductions in utility sales to residential consumers.
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University of Minnesota Ph.D. dissertation. 2015. Major: Applied Economics. Advisors: Frances Homans, Terrance Hurley. 1 computer file (PDF); 126 pages.
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Eryilmaz, Derya. (2015). Essays on the Analysis of Electricity Markets and Policy: Renewable Electricity and Demand Response. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/175431.
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