Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.
In this edition, we present topics related to a challenge that many countries are facing in expanding renewable energy due to lack of market integration. Koichiro Ito exploits changes that recently occurred in the Chilean electricity market to examine the impact of market integration.
We hope you will enjoy it. If you have any feedback, we would love to hear from you.
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)
This month's featured article
Does Market Integration Help to Expand Renewable Energy?
Effective and economical expansion of renewable energy is one of the most urgent and important challenges for addressing climate change. The electricity sector generates one of the largest shares of global greenhouse gas emissions along with the transportation sector. In addition, a significant part of the transportation sector is expected to be electrified in the near future. Decarbonizing electricity generation is therefore critical to addressing climate change.
Many countries are facing a challenge
However, many countries are facing a challenge in expanding renewable energy because existing network infrastructures (i.e., transmission networks) were not originally built to accommodate renewables. Conventional power plants, such as thermal plants, were able to be placed reasonably close to demand centers (e.g. large cities), and therefore, minimal transmission networks were required to connect supply and demand. However, renewable energy, such as solar and wind, are often best generated at locations that are far from demand centers.
Two problems arise from the lack of market integration between renewable-intensive regions and demand centers. First, when renewable supply exceeds local demand, electricity system operators have to curtail electricity generation from renewables to avoid system breakdowns, even though this means that operators need to discard the zero-marginal cost electricity produced from renewables. This curtailment indeed occurs in many electricity markets. Second, because the marginal cost of renewable electricity is near zero, local market prices in renewable-intensive regions tend to be low and often become negative when it cannot be exported to demand centers. These two problems discourage both new entries and investment in renewable power plants. Indeed, many countries have started to realize these problems are among the first-order policy questions. For example, the Biden administration in the United States considers investment in transmission lines and renewable energy to be a key part of the infrastructure bill, currently proposed to be 1.75 trillion US dollars.
To read the full text
"Migration of System Operation to a Public Organization: Issues in the separation of electric power generation and supply"
by ITO Koichiro (Visiting Fellow, RIETI)
"Assessing the Impact of Renewable Energy Sources: Simulation analysis of the Japanese electricity market"
by YOSHIHARA Keisuke (University of Tokyo) / OHASHI Hiroshi (Faculty Fellow, RIETI)
"Overinvestment and Macroeconomic Uncertainty: Evidence from Renewable and Non-Renewable Resource Firms"
by Denny IRAWAN (Australian National University) / OKIMOTO Tatsuyoshi (Visiting Fellow, RIETI)
Our latest discussion papers
"Has COVID-19 Permanently Changed Online Consumption Behavior?"
by INOUE Hiroyasu (University of Hyogo / Japan Science and Technology Agency / RIKEN Center for Computational Science) / TODO Yasuyuki (Faculty Fellow, RIETI)
"Achieving Inclusive Transportation: Fully Automated Vehicles with Social Support"
by Sunbin YOO (Urban Institute, Kyushu University) / KUMAGAI Junya (Urban Institute, Kyushu University) / KAWABATA Yuta (Urban Institute, Kyushu University) / MANAGI Shunsuke (Faculty Fellow, RIETI)
"Why Women Work the Way They Do in Japan: Roles of Fiscal Policies"
by KITAO Sagiri (Senior Fellow, RIETI) / MIKOSHIBA Minamo (University of Tokyo)
"Does Employee Downsizing Work? Evidence from Product Innovation at Manufacturing Plants"
by OKUDAIRA Hiroko (Doshisha University) / TAKIZAWA Miho (Gakushuin University) / YAMANOUCHI Kenta (Kagawa University)
"Misallocation under the Shadow of Death"
by MIYAKAWA Daisuke (Hitotsubashi University) / OIKAWA Koki (Waseda University) / UEDA Kozo (Waseda University)
"Local Labor Market Effects of Chinese Imports and Offshoring: Evidence from Matched-Foreign Affiliate-Domestic Parent-Domestic Plant Data in Japan"
by KIYOTA Kozo (Research Associate, RIETI) / NAKAJIMA Kentaro (Faculty Fellow, RIETI) / TAKIZAWA Miho (Gakushuin University)
[List of discussion papers]
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RIETI Report is published bi-weekly.