Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


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Renewable Energy and the Smart Grid


Concerns about climate change have spurred efforts to accelerate the introduction of energy from renewable sources like wind and solar into electricity supply industries worldwide.  At the same time, formal wholesale markets for electricity have become the norm, having now been in place for more than ten years in many regions of the United States and for an even longer time in most industrialized countries of the world.  Integrating a substantial amount of renewable energy sources into wholesale electricity markets presents two key challenges around which PESD research efforts are structured.

First, regulatory mechanisms must support the construction of appropriate transmission infrastructure.  Because the richest renewable resource potential is often located far from population centers, the inability to site and build adequate transmission lines to interconnect renewable generation to the grid can be a major barrier to the expansion of renewable energy.  Sorely-needed transmission expansions are not realized both because their benefits are difficult to quantify and because existing regulatory processes lack suitable means of allocating project costs to those who will benefit.  Existing and planned PESD research seeks to address the first problem by creating models of the benefits of transmission expansions under scenarios of high renewable energy penetration.  Such models must incorporate not only the direct effect of new transmission lines on power flows, but also the responses of market incumbents to the increased competition enabled by transmission expansion.  A second component of PESD's research on transmission takes a more holistic look at why some jurisdictions have been relatively successful at bringing new transmission infrastructure on-line while others-including the great majority of the US with the exception of Texas-have not.  PESD plans comparative case studies of transmission planning processes in various jurisdictions around the world to understand what approaches are most effective and how wider adoption of best practices could affect renewable energy investment and deployment patterns.   

Second, the electricity system must be able to manage the intermittency of renewable energy sources such as wind and solar, which cannot be turned on and off at will like fossil fuel power plants.  Adequate transmission infrastructure helps in managing intermittency but is not sufficient.  It is likely that any electricity market with a significant fraction of energy from renewable sources will need to create mechanisms through which electricity consumers can respond to unpredictable (and sometimes highly correlated) changes in electricity supply.  The fundamental obstacles to a "smart grid" that would let consumers see the true price of energy and adjust their consumption patterns in response are not technical but regulatory and behavioral.  Regulatory bodies have felt the need to "protect" consumers from price volatility.  However, it is this very price volatility that can allow consumers to benefit by "buying low and selling high" in the electricity market, in the process creating a genuine demand pull for needed energy storage technologies.  PESD research focuses on how consumers actually respond in dynamic pricing experiments and how information provided to consumers about their pricing plan and household appliance stock affects their energy use.  This work aims to quantify the value unlocked by dynamic pricing and information provision, giving regulators the input they need to advance the consumer's interest in retail electricity policymaking.