TY - JOUR
T1 - Prudent Electricity Procurement by a Load Serving Entity
AU - Cao, Kang Hua
AU - Qi, Han Steffan
AU - Woo, Chi Keung
AU - Zarnikau, Jay William
AU - Li, Raymond
N1 - This study is funded by the Ford Foundation’s grants (#134371 and #139746) and the Research Matching Grant Scheme of the Research Grant Council of the Hong Kong Special Administrative Region and the National Natural Science Foundation of China (#72473103).
Publisher Copyright:
© 2025 by the authors.
PY - 2025/2/5
Y1 - 2025/2/5
N2 - Motivated by the projected solar and wind capacity additions around the world, we model the energy procurement decision of a load serving entity (LSE) faced with alternatives of solar power purchase agreements (PPAs), wind PPAs, non-renewable energy forward contracts, and spot energy purchases in a wholesale electricity market with uncertain prices. Using a pseudo-data sample of over one million observations, we estimate a translog cost function to find that the LSE’s own-price elasticity estimates range from −1.87 for nighttime spot MWh demands to −13.1 for forward MWh demands. MWh demands are influenced by solar and wind capacity factors, daytime and nighttime retail sales, and spot energy price forecasts. The LSE’s optimal procurement of solar capacity is roughly twice the wind capacity, corroborating the ratios of projected solar and wind capacity additions in regions around the world. If the LSE’s existing energy mix is nearly all renewable, it becomes carbon-free when solar and wind power purchase agreements have declining energy prices or when forward energy price and spot energy price forecasts increase over time. These results imply that piecemeal policy measures can have conflicting outcomes, calling for integrated resource planning under wholesale market competition and price uncertainty.
AB - Motivated by the projected solar and wind capacity additions around the world, we model the energy procurement decision of a load serving entity (LSE) faced with alternatives of solar power purchase agreements (PPAs), wind PPAs, non-renewable energy forward contracts, and spot energy purchases in a wholesale electricity market with uncertain prices. Using a pseudo-data sample of over one million observations, we estimate a translog cost function to find that the LSE’s own-price elasticity estimates range from −1.87 for nighttime spot MWh demands to −13.1 for forward MWh demands. MWh demands are influenced by solar and wind capacity factors, daytime and nighttime retail sales, and spot energy price forecasts. The LSE’s optimal procurement of solar capacity is roughly twice the wind capacity, corroborating the ratios of projected solar and wind capacity additions in regions around the world. If the LSE’s existing energy mix is nearly all renewable, it becomes carbon-free when solar and wind power purchase agreements have declining energy prices or when forward energy price and spot energy price forecasts increase over time. These results imply that piecemeal policy measures can have conflicting outcomes, calling for integrated resource planning under wholesale market competition and price uncertainty.
KW - MWh demands
KW - risk-adjusted budget minimisation
KW - variable renewable energy
KW - wholesale price uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85217619048&partnerID=8YFLogxK
U2 - 10.3390/en18030726
DO - 10.3390/en18030726
M3 - Journal article
AN - SCOPUS:85217619048
SN - 1996-1073
VL - 18
JO - Energies
JF - Energies
IS - 3
M1 - 726
ER -