Market Clearing Mechanisms for Efficiently Incorporating Renewable Energy and Mitigating CO₂

Abstract

In recent years there has been a move in the majority of industrialized countries to invest in renewable resources for the production of energy. This move has come about as people worldwide are more aware of negative effects of fossil fuel sources of energy on the environment, including the release of green house gases such as CO₂. Utilization of renewable sources of energy, for instance, harnessing wind power in electricity production, is deemed to be reducing the use of fossil fuels and hence results in the reduction of CO₂. Mechanisms that promote and facilitate utilization of renewable sources of energy are being developed. In particular, recently stochastic programming market clearing mechanisms have been suggested that would seemingly allow for a more efficient use of wind energy hence reduction of fossil fuel use, that ultimately would result in a reduction of CO₂. In this paper we will examine the steady state behaviour of participants in an electricity market to fully analyze the hypothesis that the stochastic programming market clearing mechanism is less fossil fuel (and hence CO₂) intensive than a conventional two settlement market through some simple examples.