Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Energy Storage and Renewable Energy.
Abstract: I consider an economy with fossil fuel and renewable
energy and energy storage, and search for the conditions that lead to
welfare improvements when energy is stored. I then solve for the optimal
decision rule and analyze the long-run tendencies of the economy-energy
variables. The findings are threefold. First, energy storage is fostered by
the convexity of the marginal utility (prudence), the marginal cost
function for fossil fuel energy, and the degree of intermittency. Second,
considering a low penetration of renewable energy to the power grid, energy
storage is not welfare improving if the fossil fuel energy cost function is
linear. Third, energy storage creates an added value to renewable energy
investments when actively used. By showing the in uence that energy storage
can have on energy generation and investment decisions, I hope that the
current work can be in uential in a more generous treatment of energy
supply in future energy-economy-climate models.
Keywords: Energy storage; Fossil fuel energy; Renewable energy; Precautionary savings; Collocation method; Monte Carlo simulations.; (follow links to similar papers)
JEL-Codes: C61; C63; G31; Q21; Q41; Q42; (follow links to similar papers)
40 pages, June 30, 2014
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