An Investigation of Optimized Carbon Tax-Subsidy Mechanism to Enhance Power System Sustainability Considering Wind Power Penetration

Abstract

In addressing current sustainability challenges, it is crucial to reduce CO2 emissions from power systems. An economic approach is to devise a solution for increasing the penetration of renewable energy sources. This can be achieved by implementing taxes on CO2 emissions from fossil fuel power plants (FFPP). However, it is important to carefully design this tax to ensure that sustainability is not compromised. For instance incorrect tax amounts and implementation methods can result in an excessive increase in energy prices and a reduction in consumption. This paper proposes the power system sustainability index (PSSI), which incorporates economic, social and environmental aspects to obtain optimal tax. Furthermore, tax revenue is allocated as a subsidy to wind power plants (WPP). The mutual effects of taxation, prices and subsidies create a loop, wherein the amount paid as a subsidy and received as tax converge in an optimized cycle. Thus, the proposed optimized carbon tax-subsidy mechanism (OCTSM) has two key characteristics: it increases the PSSI optimally and ensures equivalence between the amounts paid and received. The effectiveness of the developed strategy was evaluated on the modified IEEE 24-bus test system with penetration of WPP along with power production uncertainties. The results indicate that an optimized tax system leads to a higher PSSI. Furthermore, as the total installed capacity of WPP increases, the impact of the tax on improving the PSSI becomes even more significant. However, there is a limit to the capacity expansion, beyond which the effect on the PSSI diminishes.

Keywords

• Carbon tax
• energy policy
• power system sustainability
• tax-subsidy mechanism
• wind power penetration