4 Types of Values of Renewable Energy
Market Value, Social Cost Avoidance Value, Social Benefit Value, and Cost Reduction Value
Previously I had already introduced the market value of renewable energy (VRE in particular). Now I would like to complete the picture and introduce three other values of renewable energy, namely its social cost avoidance value, social benefit value, and cost reduction value.
Social Cost Avoidance Value
Social cost of conventional power plants:
Social Costs: RE vs CPP
Most of the social costs of renewable energy lies during the capacity installation phase and decommissioning phase. Running renewable energy power plants usually incurs little to none social costs.
Meanwhile, all CPP has significant social costs related to the usage phase during their life cycle. Thus reducing energy consumption from CPP via RE makes sense, even when RE has little to none capacity value!
One can clearly see the avoided environmental damage of a fully-RE based energy system from studies such as “Environmental co-benefits and adverse side-effects of alternative power sector decarbonization strategies”. Fully-RE based energy system is superior to the alternatives in terms of almost all environmental metrics except mineral resource depletion and land use.
It should be noted that many RE technologies are continuing to optimize the material and energy use efficiency during their production process, so their negative impact on the environment will continue to improve in the future.
Emission Accounting: Marginal or Average?
To determine the social cost avoidance value of RE, one needs to construct a self-consistent methodology for account the negative impacts caused from conventional energy sources. Without loss of generosity, below we shall focus our discussion on carbon emissions.
The first nature question arises would be to whether count the marginal or average emission reduction when quantifying the deployment and use of RE.
For policy decision purpose, the marginal emission reduction / increment per unit of technology deployment provides a full picture of cost-effectiveness at a particular time slice.
However, when accounting the emissions to different consumers, the principle of equipartition of contribution demands us to assume each unit of energy at a time instant contains the same amount of carbon emission. Thus average carbon emission should be calculated.
Another question that arises would be the allocation of “capacity-related” and “energy-related” emissions.
Just like in the case of market values, fair allocation of the pollution caused by different technology types should distinguish between the pollution due to installation of the technology (capacity related) and the usage of the technology (energy related).
For example, solar and wind have zero operational emissions, so a consumer that wishes to minimize her carbon intensity should not consider LCA emissions of solar and wind during operation; she should, however, allocate the LCA emissions to the solar and wind capacity she is responsible for (the calculation is similar to that of reserve obligation in my previous article).
(One reasonable methodology would be to divide the LCA emissions of solar and wind throughout their lifespan and allocate the capacity-related emissions to the consumer of the power plants annually.)
Internalization of Social Costs
Social costs of CPP can theoretically be internalized (ex. Carbon tax) so that they are already accounted for in the market values of RE. This is unfortunately usually not the case.
Cost internalization via carbon pricing aside, can a change of consumers’ strategy make the social cost avoidance value tangible for RE?
Short Term Effects of Emission-Driven DSM
The consumer who adopts emission-driven DSM can reduce her carbon intensity.
However, if the capacity of all technologies and the total demand of the consumer are assumed to remain constant, the net effect of load shifting depends on the marginal emission spread between the two time intervals which load shift is performed.
Since the marginal carbon emission of the system is not considered for the consumer to perform DSM, undesired results might occur (i.e. switching from gas to coal).
Long Term Effects of Emission-Driven DSM
If a significant number of customers perform emission-driven DSM, more demand will be needed during VRE output peak, thereby increasing the average market value of VRE.
Principle of zero profit implies that this would result in faster VRE installation since the equilibrium is shifted in favor of more VRE.
The effect is still highly uncertain compared with other mechanism (ex. PPA with VRE).
But as negative residual load events occur more and more frequently, VRE availability-based DSM would eventually be beneficial and even vital.
Social Benefit Value
Social Benefits of RE
Decentralized and (or) community-based renewable projects may enhance energy democracy, increase the rate of energy accessibility in developing countries (especially in Africa where solar potential is abundant).
Agri- and Aquaphotovoltaic can reduce water consumption and temperature variations of the farm / pond, and increase land use efficiency; offshore windfarm can increase fishery yield under some conditions.
Social Benefits of RE: Quantification
Many of the social benefits of RE are difficult to monetize. Consumer’s willingness to pay under certain conditions might be the only reliable way to quantify those benefits.
Methods include contingent valuation, simulated auction, and meta analysis…
Cost Reduction Value
Learning Curves of Renewables
Marginal Analysis of Cost Reduction Value
