Battery-Storage Investment for a Power System with High Variable Renewable Energy Output

Abstract: Climate change is posing significant threats to human beings. Deploying renewable energy sources in electricity generation is widely accepted as an indispensable part of the solution to climate change. The vast potential lies in variable renewable energy sources, such as solar and wind. However, the intermittency of variable renewable energy sources is limiting their deployment. Investing in grid-scale battery systems is a potential solution to this problem. This thesis investigates this potential for the Nordic power sector, taking into account its distinct features, e.g., the vast amount of hydro reservoirs. Taking the capacities of variable renewable energy and battery systems as endogenous variables while considering the salient characteristics of the Nordic power sector, this thesis answers the following research question: How could variable renewable energy investment be supported by complementary investment in grid-scale battery systems to maximise social welfare? Answering this question helps solve the unaddressed research problem of assessing endogenous investment decisions in the capacities of variable renewable energy generation and grid-scale battery systems in the Nordic power market. This, in turn, helps informed decision-making in renewable-energy and energystorage investments to facilitate the realisation of the climate goal. Two experiments are conducted: one with ordinary BESS costs estimation and another assuming a lower-end level of costs. The data come from documents from official statistics (e.g., those from Nord Pool) and peer-reviewed publications. A quadratic programming optimisation model is used to maximise social welfare. Problem instances are then solved using the CPLEX solver implemented in the GAMS software. The results suggest that investing in BESS capacity helps to promote VRE adoption and VRE generation. Consequently, CO2 emission is reduced, and consumer surplus is improved, whereas the total social welfare remains unaffected.