Energy storage and renewable energy

Energy storage and renewable energy / Tunc Durmazy. Norwegian School of Economics, May 2014, 46 p. (Discussion paper ; SAM 18 2014)

Author’s 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 influence that energy storage can have on energy generation and investment decisions, I hope that the current
work can be influential in a more generous treatment of energy supply in future energy-economy-climate models.

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