Efficient Methods of Market Pricing in Power Industry within the Context of System Integration of Renewable Energy Sources

Abstract

Currently, the majority of world economies (even those located in the sunbelt (+/− 35 degrees of latitude with good sunshine with low seasonality) uses various types of fossil fuels as the main source of energy for their economies. However, this represents a very volatile and unsustainable strategy, since according to various estimates, the fossil fuel era will inevitably end as all carbon fuels are going to be spent in the next few centuries. Unlike traditional energy, renewable energy sources (RES) are not based on energy resources, but rather rely upon natural energy flows. With regard to its unique property, there has been an active construction of power plants of renewable energy and their gradual integration into national energy supply systems in recent decades. At the same time, the existing models of electricity markets were unprepared for their wide distribution. Hence, determination of the market value of energy generated by power plants using renewable energy sources becomes a particularly significant issue. This market value has to take into account the prevention of costs from the use of fossil fuels, as well as the resulting environmental benefits. Our paper proposes methods for solving this problem, contributing to the increase of economic efficiency of investment projects for the construction of renewable energy facilities and the formation of economic incentives for their propagation in energy supply systems. The proposed methods are based on the dynamic differentiation of tariffs for consumers with renewable energy sources depending on their structure of electricity consumption. Its effectiveness is demonstrated by calculating the cost of electricity for households located in the Krasnodar region using renewable energy sources. It is shown that this approach to the formation of tariffs for consumers allows the household to receive additional savings from the efficient use of energy installations on RES and energy storage devices in terms of alignment of the energy consumption schedule. This creates a significant incentive for households to use them and contributes to increasing the effectiveness of government renewable energy support programs, including by solving the acute problem of raising electricity tariffs from the grid.