Abstract

To reduce CO2 emissions requires greater reliance on renewable sources of energy for generating electricity, especially adoption of large-scale wind generation. This study investigates possible approaches and/or policies that increase efficient use of renewable energy and reduce greenhouse gas emissions in a cost effective manner. We develop a constrained optimization model of two electricity systems to identify the impact of increasing wind generating capacity and examine how carbon prices (taxes, allowances) impact the penetration of wind power into the electricity grids. Rather than employ engineering cost functions, marginal cost functions are estimated using hourly offer data from the Alberta Electric System Operator. We determine optimal removal of coal generating facilities as greater levels of wind capacity are installed in an integrated Alberta-BC electricity system; and examine the economic costs and institutional incentives that affect the ability to store intermittent wind-generated power in BC’s hydro reservoirs during low demand. The marginal shadow price of storage is zero, whichindicates that there is more than enough water behind the dams given Alberta’s relatively small demand for storage and limited intertie transmission capacity.