Developing a Welfare-based Sustainable Energy Portfolio
Abstract
While the negative externalities of energy production methods have been the topic of many recent studies, these unseen damages to other markets are not always considered in the planning phase, which may result in inefficient market outcomes. Portfolio theory that is the basis of energy planning in most cases, for example, rather than considering the externalities as a function of production, usually assumes a fixed number and combines it as part of the energy's production cost. While this method is serviceable, it does not account for social costs and how regulation policies can alleviate this problem. This research seeks to find the optimal energy production mix based on supply and demand in a regulated market using an economic approach, while considering the environmental aspects of the externalities, caused by the generation of each energy technology. To achieve this, first, the supply and demand curves of energy production technologies were compiled to account for the consumers' willingness to pay and the costs associated with energy production. Next, the supply curve was adjusted for the estimated negative externalities. Unlike most studies where Carbon has been the main focus of externalities, here the negative externalities take into account additional factors such as hazardous chemicals, land usage, and deterioration of water quality. Then, with the demands and costs known, and using the customary regulation policies such as emission taxation to incentivize abatement, the optimal production limits of each energy type were calculated for the market. The regulations ensure that public environmental resources are not overused. Then, an optimization problem was formed and solved to maximize total market welfare and find the optimal energy production mix. Additionally, the minimization of the total cost of the energy mix and meeting the energy demand at the market equilibrium point were also taken into account as supplementary constraints. Finally, the same analysis was carried out for different levels of monthly energy demand to find the overall optimum share of production for each energy technology in the portfolio. This proposed method was showcased for the electricity industry market in the state of South Carolina as a case study.
- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2020
- Bibcode:
- 2020AGUFMGC0690004K
- Keywords:
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- 1630 Impacts of global change;
- GLOBAL CHANGE;
- 4321 Climate impact;
- NATURAL HAZARDS;
- 6304 Benefit-cost analysis;
- POLICY SCIENCES & PUBLIC ISSUES;
- 6309 Decision making under uncertainty;
- POLICY SCIENCES & PUBLIC ISSUES