Kiti Suomalainen (New Zealand) 1; Golbon Zakeri (New Zealand) 1; Basil Sharp (New Zealand) 1; Peter Wilson (New Zealand) 2; Gareth Williams (New Zealand) 3
1 - Energy Centre, The University of Auckland; 2 - New Zealand Institute of Economic Research; 3 - Solarcity
Polynesian island states are among the most vulnerable in a changing climate, experiencing more frequent and more powerful storms than before. This demands new ways of thinking about both safe-guarding existing grid infrastructure and developing new systems in remote areas. Using renewable resources to expand access to affordable, reliable and clean energy is a priority for governments in the region and a common focus for aid programmes. However, too rapid deployment of decentralized solutions may lead to an economically sub-optimal transition, through under-utilisation of the existing infrastructure – which often is still being paid for – and investment in new off-grid solutions.
Existing research has concentrated on the economics of meeting renewable energy targets, with a focus on generation, while the electricity distribution technology has generally been omitted. Our contribution comes from investigating the economic impacts of renewable generation on existing grids in Polynesian island states, and with this consideration, what the optimal transition pathway to a more resilient, distributed system looks like from the systems perspective.
There are economic implications for the consumers who are already connected to the grid. They too may be able to opt for an off-grid, renewable energy based, distributed technology solution. Thus, as more consumers move off grid, the cost of the existing grid must be recovered from a reducing pool of consumers, leading to higher costs, which in turn incentivizes more consumers to switch to off-grid solutions, the well death spiral effect. Technological developments which, on their face seem positive – lower costs, better access to reliable electricity – can come with other costs when the system as a whole is considered.
This raises the issue of sunk assets in the existing grid: revenue from remaining customers may be insufficient to continue to meet the costs of the assets, especially if they were financed by borrowing. Repayment obligations related to existing generation capacity and distribution networks could act as a barrier to progress. In this work we investigate the economics and lessons learned from existing renewable energy projects, and apply a stochastic dynamic programming framework and rolling horizon implementation of the model to explore the optimal economic transition pathways under uncertainty. We present initial results for incorporating the cost of existing obligations into the economic analysis of distributed energy projects in Polynesian islands. We recommend careful systems planning when transitioning to more resilient, climate adapted energy systems in climate vulnerable island states.