1. Teaching Microeconomics of Renewable Energy ISEE Conference Reykjavík, Iceland August 13, 2014 David Timmons University of Massachusetts Boston david.timmons@umb.edu

3. kW = 9.8ηQH Dam functions: 1. create head 2. store water (store energy) Renewable Energy: Physical Basis photo: Orkustofnun, Iceland National Energy Authority

4. W = 0.5 ρAV 3 Renewable Energy: Physical Basis

5. Adapted from Murphy and Hall (2010) Renewable Energy Cost Factors: Net Energy Ratios

6. Adapted from EIA (2013) Renewable Energy Cost Factors: Capital Intensity

7. Renewable Energy Cost Factors: Intermittency pumped storage: Northfield, Massachusetts

8. source: EIA (2014) Renewable Energy Supply source: Jacobson and Delucchi (2011) terawatts (TW) 2012 $/kWh 2030 est. demand = 17 TW

9. P Q MC H A. Hydropower: low initial cost, but limited quantity Microeconomic Concepts: marginal cost Renewable Energy Supply

10. P Q MC H P Q MC W A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity Microeconomic Concepts: marginal cost Renewable Energy Supply

11. P Q MC H P Q MC W P Q A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity C. Solar PV: highest cost, unlimited quantity Microeconomic Concepts: marginal cost supply elasticity Renewable Energy Supply MC PV

12. P Q MC H P Q MC W P Q P Q MC agg A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity C. Solar PV: highest cost, unlimited quantity D. Aggregate renewable supply, and demand MC PV Microeconomic Concepts: marginal cost supply elasticity aggregate supply Renewable Energy Supply

13. P Q MC H P Q MC W P Q P Q D MC agg A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity C. Solar PV: highest cost, unlimited quantity D. Aggregate renewable supply, and demand Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium Renewable Energy Supply MC PV

14. P Q MC H P Q MC W P Q P Q D MC agg A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity C. Solar PV: highest cost, unlimited quantity D. Aggregate renewable supply, and demand Renewable Energy Supply Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium equimarginal principle MC PV

15. P Q MC H P Q MC W P Q P Q P Q MC C D MC agg A. Hydropower: low initial cost, but limited quantity B. Wind: higher cost, higher quantity C. Solar PV: highest cost, unlimited quantity E. Conservation: high quantity available at MC of solar PV D. Aggregate renewable supply, and demand Renewable Energy Supply Microeconomic Concepts: marginal cost supply elasticity aggregate supply market equilibrium equimarginal principle MC PV

16. Coal Hydro Power Geothermal Peat 0 20 40 60 80 100 120 140 160 1900191019201930194019501960197019801990 PJ (petajoule) 1 petajoule = 10 15 joule = 0,278 TWh Source: Orkustofnun 2004 Geothermal Heating in Iceland Oil 2000

17. Coal Hydro Power Geothermal Peat 0 20 40 60 80 100 120 140 160 1900191019201930194019501960197019801990 PJ (petajoule) 1 petajoule = 10 15 joule = 0,278 TWh Source: Orkustofnun 2004 Geothermal Heating in Iceland 0% 20% 40% 60% 80% 100% 19001920194019601980 2000 Proportional contribution of sources Oil 2000

18. Geothermal Heating in Iceland

19. Ísafjörður

20. District Heat Energy Sources 2008 electricity, 86% oil, 4% District Heating System Ísafjörður, Iceland Population: 2,600 Midtown District (Skutulsfjardareyri) Southern District (Holtahverfi ) incinerator plant incinerator, 10%

21. P MC renewable1 Time MC fossil t1t1 Renewable Energy Transition Dynamics

22. t2t2 P Time MC fossil MC renewable1 t1t1 MC renewable2

23. SMC fossil t2t2 Renewable Energy Transition Dynamics P Time MC fossil t3t3