Analysis of electricity prices for power supply toward a social optimum for installed wind and solar power utilization

Energy modeling with an objective function targeting the entire power supply system can determine a power supply mix for a high share of variable renewable energy (VRE) electricity in the power supply. However, actual power supply systems are developed by the partial optimization of the various components of the entire system, such as the power transmission and distribution (PTD) company. This study aims to determine the effective electricity price conditions for the optimal utilization of geographically distributed VRE power by the PTD company. The analysis method used is an optimization model with an objective function targeting the PTD company cost. The optimization model minimizes the PTD company cost, which includes the costs of electricity purchase and installation of battery storage and transmission systems. The methodology is applied to the power supply system of Hokkaido as a case study. The results show that the amount of VRE electricity utilized by the PTD company depends on the electricity prices from thermal and VRE power generation companies. Increasing the VRE share of the power supply requires higher electricity prices from thermal power. The higher shares of VRE require increases in battery storage and power transmission capacities to minimize the VRE power output fluctuations. Further, the results show that the price difference between thermal and VRE electricity prices is a key factor to determine the VRE utilization by the PTD company. A larger price difference is necessary for the PTD company to increase the VRE share and install battery storage and transmission systems. High prices of thermal power increase the revenues of power generation companies and the cost to the PTD company. To reduce the PTD company costs, additional measures such as a carbon tax, cheaper VRE electricity prices, and subsidies may be effective to incentivize battery storage and transmission costs.