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Environmental Regulation And The Electric Power Industry: Theoretical And Numerical Analyses Of Intersecting Markets With Multiple Public Goods
The reliable supply of electricity over an electrical network is essential for modern societies. The electrical network is a complex grid connecting electric generation units, or generators, with the consumers who use the energy to meet their daily needs. In order to successfully provide electric energy to consumers each day, certain regulations are implemented by the regional dispatcher of electricity to ensure its uninterrupted delivery even if a mild contingency occurs. Unlike the electric energy consumed by each individual consumer, which is a private good because consumers use and pay for exactly what they use, the electric reliability supplied over the network is a public good. This is because all consumers in a region receive the same level of electric reliability, no matter how much electricity is individually consumed. While the reliable supply of electricity is crucial, there is also serious concern about the negative environmental impacts of the air pollution created by these generators. Depending on the type of air pollutant, it can have either a uniform or localized impact, called global or criteria pollutants, respectively. Though global and criteria pollutants impact the environment differently, both have properties of public goods because all consumers in the region affected by the pollutant receive the same level of air pollution, no matter how much electricity is individually consumed. Further complicating the layering of environmental regulation on top of electric reliability regulation is that the path of electricity over the network, the dispersion of global pollutants through the air, and the dispersion of criteria pollutants through the air generally differ. In order to explore the interactions of electric reliability and environmental regulation, both a theoretical and numerical simulation framework is built. The main exploration of the theoretical model is to compare, while considering electric reliability and environmental pollution, the social welfare maximizing solution to the competitive market solution. This is done to determine if competitive markets for electricity and either global or criteria air pollutants can achieve the socially optimal solution. In addition to the theoretical analysis, numerical simulations of a highly simplified electricity network and airshed for Northeastern North America are built. The model is exercised under varying combinations of variables in order to test the practical signifficance of the theoretical results. The adjustment of the model variables allows for meaningful research in two primary areas. The first area is understanding the policy impacts of environmental regulation, such as the Regional Greenhouse Gas Initiative (RGGI), when faced with various constraints on the electric grid, such as a required reserve margin. The second area is to study varying methodological practices for modeling the electric grid by comparing alternating current (AC) and direct current (DC) simulation results and the effect of their different estimates of line constraints based upon both thermal load and voltage level. The results of the theoretical analysis lead to the conclusion that after assuming a central planner has set variables surrounding the transmission grid, complicating interdependencies in markets for criteria pollutants make achieving the socially optimal solution unlikely. Markets for global pollutants can more easily achieve the socially optimal solution due to the lack of these interdependencies. The numerical simulations demonstrate a major issue that can arise in attempts to regulate air pollution on a regional basis in a policy such as the RGGI. "Leakage" occurs when the cost of generating electricity to pollution emitting generators in the regions where air pollution regulation applies is increased, inducing larger imports of electricity from external unregulated regions that do not face the same emission cost. The resulting outcome may diminish the effectiveness of the regulation in reducing pollution or, in the worst case, increase total emissions. The outcome of the simulations shows that leakage is a major concern for the RGGI's ability to reduce net emissions. The numerical simulations also demonstrate that the outcomes critically depend on the methodology used in solving the system. Both a DC approximation of the actual AC system flows are modeled by linear equations in a DC network) and the more realistic non-linear AC network that includes constraints on voltage levels (a public good that in reality must be kept within bounds) are modeled. In addition, the electric transmission power constraints are relaxed to examine their importance. The difference in complexity between AC modeling and DC modeling as well as transmission constraints become especially important when the network is operated at high prices for the regulated air pollutants, causing significant changes to the mix of the fuel type used by dispatched generators.
dissertation or thesis