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Optimal level of supply security in the power sector with growing shares of fluctuating renewable energy

Praktiknjo, Aaron; Dittmar, Lars

In many countries a rapid expansion of intermittent renewable power generation has occurred in recent years. Simultaneously, conventional power plants such as nuclear generators are being phased-out of the energy system. Especially the German power system is characterized by these two developments. In this context, appropriate methods for the assessment of the security of electricity supply are more important than ever. In general, there are deterministic and probabilistic methods to assess security of supply or generation adequacy respectively. In the past, the four German transmission system operators (TSOs) have relied on a deterministic approach. However, while there is a continuous debate about methodological details, it is widely acknowledged that probabilistic approaches are more appropriate that deterministic ones especially in light of the stochastic nature of intermittent renewables. We share this opinion and, therefore, revert to probabilistic methods. While policy makers in Germany circumvent the question of appropriate level supply security by not defining it explicitly, we argue that rational policies must derive the level security from economic considerations. Ideally, investments in supply security should only be made if the resulting benefits outweigh the costs. With our research, we want to contribute to the economic assessment of security of supply and thereby provide a rational guideline on how to derive an economic efficient level of security.
Published in: IAEE energy forum, International Association for Energy Economics