Framework to explore tradeoffs on integrating water into the energy market

Abstract:

This study introduces an exploratory framework that incorporates water into the energy and capacity market for electricity. Here, we propose a framework centered on energy and capacity market mechanisms to demonstrate how energy network management would change with the addition of water consumption rates and water availability constraints. Water and energy are integral, complex systems that increasingly continue to be under tension as conflicting demands arise from expanding populations, depleting resources, damaged ecosystem services, and climate change. Currently, the U.S. relies on conventional fuels to contribute more than 60% of total electricity generation, a dependence that has a significant hidden water footprint and impact on environmental quality. There has been much attention on energy-related carbon emissions and public policies to enforce a push for other energy sources and carbon pricing in wholesale energy markets. To fully price how power generation impacts the environment, energy markets should include water availability and other physical characteristics as parameters within energy network optimization.

The disconnect between water resources and energy network management makes it challenging to understand how water and energy systems affect each other in the same temporal and spatial scales. When optimizing electricity generation, the energy and capacity market assumes unlimited water resources to create the optimal mix of resources in the market. These markets consider the network technological feasibilities and price energy generation based on direct fixed and variable costs from fuel usage and generator operation. This neglect in environmental externalities adds to market inefficiencies as the price and cost of an additional megawatt of a coal plant does not reflect the increased stress on the water body that coal plants rely on to extract and release their cooling water. The framework can facilitate comparative energy network scenarios and highlights tradeoffs that arise from elementary accounting of water resources.