Within the scope of this initial sub-model, the effects of the financial costing and capacity margin aspects in São Miguel are evaluated. Three main scenarios were used for the evaluations. In all scenarios, the initially installed fossil fuel capacity and initial potential fossil fuel capacity were obtained from the historical data of São Miguel, for the initial time of January 2005. The average present age of existing fossil fuel generators at this initial time was also used (EDA, 2016). The scenarios differ with regards to the exogenous electricity demand forecasted for the island system.
The capacity margin is assumed to be 30% as is existent in this system (EDA, 2016).
Scenario descriptions
Reference scenario: This scenario considers the “business as usual” case and represents what is most strongly expected to occur under the current system. The electricity demand rate forecasts of 3% per annum increases, and the exogenous electricity tariffs and fossil fuel prices given from the extrapolated historical data were used for this scenario.
Below average demand scenario: This scenario reflects a lower than the forecasted electricity demand within the system of less than 3% per annum. This value is fixed at 1.5 % per annum.
Electricity tariffs and the fossil fuel prices were set to be at a lower extrapolated trajectory over the
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simulation time of the sub-model. A lower peak demand forecast of 1.5% per annum is also accounted for in this scenario.
Above average demand scenario: This scenario reflects a higher than the forecasted electricity demand within the system of more than 3% forecasted per annum. This value is fixed at 4.5% per annum. Electricity tariffs and the exogenous fossil fuel prices were set to be at a higher extrapolated trajectory over the simulation time of the sub-model. A growth in peak demand of 4.5% per annum is also accounted for within this scenario.
Scenario analysis
Figure 4.3 shows the monthly installed fossil fuel capacity of all three scenarios. This installed fossil fuel capacity appears to be stable until about 2017 in all three scenarios and then gradually rises for the rest of the simulation time up to about 200MW by 2050. The fossil fuel generation investments are reflected in the amount of new fossil fuel generation that is required to meet the needs of the island system. As expected the above average demand scenario has the highest growth whilst the below average scenario has the lowest. It is also observed here that the difference in the growth rates is reflective of the differing long-term positive impacts of the demand forecast on the installed fossil fuel in the island system.
Figure 4.3 Installed fossil fuel capacity for below average demand, above average demand and the reference scenarios
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Shown in Figure 4.4 are the results for scenario runs of the capacity margin together with the
“business as usual” scenario. Using the “business as usual” reference scenario and changing the capacity margin expected given in Section 4.1 to reflect international industry standards of between 10% and 20% as given in IEA (2010), Figure 4.4 was generated. As one would expect there are smaller increases in the amount of installed fossil fuel capacity for meeting a 10% capacity margin (RAE, 2013), than for the reference scenario of the existing 30% capacity margin.
Figure 4.4 Installed fossil fuel capacity for 10 percent capacity margin, 20 percent capacity margin and the reference scenarios
The scenario runs give symmetrical results in the long-term implying that adhering to the capacity margin change (by removing or decommissioning fossil fuel generation) will lead to a proportional change in the installed fossil fuel capacity. It follows that adhering to a 10% international standard of capacity margin will have less increases in the long-term for the installed fossil fuel capacity from the reference scenario of approximately 30%. This would be a realistic option since there is a notable amount of installed generation capacity not presently in use (EDA, 2016), hence investment decisions that are not important for demand growth can be curtailed for this level of capacity margin. However, the issue of installed capacity redundancy needed for island systems should be
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considered. Island systems generally require higher capacity margins (greater than 10%) to ensure their electricity supply redundancy and to avoid blackouts) (Weisser, 2004b; Botelho, 2015).
In addition, if the delay associated in perceiving the capacity margin or the capacity adjustment period, are longer, then the installed fossil fuel capacity and fossil fuel generations are also delayed in the long-term. A smaller delay, however, implies a lower amount of fossil fuel capacity installed and reduced unnecessary fossil fuel generation investments for the island during the simulation period. This is similar to Ford‘s (1997) conclusions on the lead time for capacity expansion projects to be shorter to ensure having enough financial basis for project completion and not over-investing in capacity in the long-term. We note here that large capacity margins in São Miguel are critical to the electricity system security (avoiding blackouts) but are not the desired driver for the fossil fuel generation capacity of the island system. However, the magnitude of the electricity demand forecast is a necessary driver for capacity expansion within the electricity system. Also, the allowed revenues and financial drivers within this system are not observed to have great impacts. This is to be expected because electricity tariffs are externally determined for the island system. The lack of financial impacts provides an opportunity for more economical generation mixes (to include different types of renewables) and for exploring the best options for integrating such low-carbon sources within such electricity systems.
Whilst undertaking an extensive review of renewable integration into island systems Weisser (2004) recommended that future models of such systems should incorporate both regulatory considerations and the dynamics of cost reduction learning from the experience of installed renewable sources, in order to evaluate comprehensively investment implications in the short, medium and long term. According to Weisser (2004), this is important to identifying the drivers and necessary investment and policy insights into a low-carbon optimised system. A sub-model for highlighting the integration of renewable energy sources within island electricity systems is presented in the next section.
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