Optimal Incentive Design for Targeted Penetration of Renewable Energy Sources
Kankar Bhattacharya and Claudio Canizares
Environmental concerns arising from fossil-fuel based generation has propelled the integration of less polluting energy sources in the generation portfolio, and simultaneously, has motivated increased energy conservation programmes. In today's deregulated electricity market, most participants (e.g., GENCOs, local distribution companies or LDCs) focus on maximizing their profits, and thus they need to be incentivized to invest in renewable generation and energy conservation, which are otherwise not profitable ventures. Therefore, this paper proposes a novel holistic generation expansion plan (GEP) model that enables the central planning authority to design optimal incentive rates for renewable integration and energy conservation targets, considering the investor interests and constraints. The model also determines the siting, sizing, timing, and technology required to adequately supply the projected demand over the planning horizon. The model is applied to the generation planning of Ontario, Canada, based on realistic data, to determine appropriate incentives for investors in renewable generation and energy conservation by LDCs. The obtained optimal incentives are shown to be similar to the ones currently in place in Ontario, with a slightly shorter pay-back period for investors. The effect of uncertainties associated with solar and wind energy availability, on the GEP model is also examined using Monte Carlo simulations.