Ensuring Security of Supply while Decarbonizing Islanded Heavy Industrial Electricity Systems

Abstract

Electricity is set to become the central pillar of both energy production and consumption in the global effort to achieve net-zero emissions. As key sectors—transportation, chemicals, and heavy industry—seek to decarbonize by electrifying their operations, industrialized nations face mounting strain on their electricity systems. This strain is further compounded by the rising demand for electricity driven by data centers and artificial intelligence applications, heralding a future of potentially unrelenting load growth. In such a context, it becomes not merely prudent but essential to approach decisions regard- ing investment and operation in the electricity sector with analytical rigor. Advanced capacity expansion models provide the tools for this task. In this thesis, the GenX model is employed to study Taiwan’s electricity system—an islanded, industrially-intensive grid—evaluating the evolution of its capacity mix, generation profile, prices, emissions, and overall costs. Our findings suggest that a reliable path to decarbonization lies in a considered combination of natural gas-fired generation with carbon capture and storage (CCUS), renewable sources such as solar and wind, and energy storage systems. Furthermore, this study finds that integration of nuclear and geothermal technologies significantly improves the cost-effectiveness of achieving decarbonization targets. This thesis also addresses the “missing money” problem endemic to energy-only electricity markets, examining how the introduction of a capacity market influences both investment and operational outcomes. We find that the efficacy of capacity markets is highly sensitive to the design parameters of the demand curve and the capacity credit values of the resources. For islanded systems such as Taiwan’s, a pragmatic approach to ensuring security of supply may involve retaining existing natural gas infrastructure as a strategic reserve, paired with a capacity market design that avoids excessive conservatism, leveraging the absence of policy interactions and competition with neighboring electricity markets, as observed in Europe.