IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v353y2024ipbs0306261923015040.html
   My bibliography  Save this article

How do uncertain renewable energy induced risks evolve in a two-stage deregulated wholesale power market

Author

Listed:
  • Zhou, Dequn
  • Zhang, Yining
  • Wang, Qunwei
  • Ding, Hao

Abstract

Integrating renewable power into power market transactions is significant in terms of achieving carbon peaking and carbon neutrality. However, the integration of intermittent renewable energy sources (RES) introduces instability into power generation and brings certain risks to deregulated power market transactions. This study aims to identify the risks arising from RES power integration and analyze how these risks transmit and evolve in deregulated power markets. A Cournot game model is constructed to analyze the generation decisions of a thermal power generation company (GENCO) and a wind power GENCO in a two-stage power market. According to the results, in the mid-to-long-term power market, an increase in the uncertainty of wind power generation (WPG) could reduce wind power supply, increase the clearing price and decrease the power demand. Then, in the spot power market, the increased uncertainty related to WPG might decrease the amount of wind power traded, increase the marginal generation cost of the thermal power GENCO, raise the clearing price, and reduce the market demand for power. Finally, the uncertainty related to wind power generation could result in diminished revenue for the wind power GENCO and a loss in overall social welfare in the two-stage power market transaction.

Suggested Citation

  • Zhou, Dequn & Zhang, Yining & Wang, Qunwei & Ding, Hao, 2024. "How do uncertain renewable energy induced risks evolve in a two-stage deregulated wholesale power market," Applied Energy, Elsevier, vol. 353(PB).
    • Handle: RePEc:eee:appene:v:353:y:2024:i:pb:s0306261923015040
    DOI: 10.1016/j.apenergy.2023.122140
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261923015040
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2023.122140?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wang, Ge & Zhang, Qi & Su, Bin & Shen, Bo & Li, Yan & Li, Zhengjun, 2021. "Coordination of tradable carbon emission permits market and renewable electricity certificates market in China," Energy Economics, Elsevier, vol. 93(C).
    2. Zhang, Yao & Wang, Jianxue & Wang, Xifan, 2014. "Review on probabilistic forecasting of wind power generation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 32(C), pages 255-270.
    3. Heikki Peura & Derek W. Bunn, 2021. "Renewable Power and Electricity Prices: The Impact of Forward Markets," Management Science, INFORMS, vol. 67(8), pages 4772-4788, August.
    4. Zhu, Chaoping & Fan, Ruguo & Lin, Jinchai, 2020. "The impact of renewable portfolio standard on retail electricity market: A system dynamics model of tripartite evolutionary game," Energy Policy, Elsevier, vol. 136(C).
    5. Fan, Zhi-Ping & Cai, Siqin & Guo, Dongliang & Xu, Bo, 2022. "Facing the uncertainty of renewable energy production: Production decisions of a power plant with different risk attitudes," Renewable Energy, Elsevier, vol. 199(C), pages 1237-1247.
    6. Lifeng Liu & Huisheng Gao & Yuwei Wang & Wei Sun, 2020. "Robust Optimization Model for Photovoltaic Power Producer’s Bidding Decision-Making in Electricity Market," Mathematical Problems in Engineering, Hindawi, vol. 2020, pages 1-8, May.
    7. Yucekaya, A., 2022. "Electricity trading for coal-fired power plants in Turkish power market considering uncertainty in spot, derivatives and bilateral contract market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 159(C).
    8. Goodarzi, Shadi & Perera, H. Niles & Bunn, Derek, 2019. "The impact of renewable energy forecast errors on imbalance volumes and electricity spot prices," Energy Policy, Elsevier, vol. 134(C).
    9. Zhang, Xinyue & Guo, Xiaopeng & Zhang, Xingping, 2023. "Bidding modes for renewable energy considering electricity-carbon integrated market mechanism based on multi-agent hybrid game," Energy, Elsevier, vol. 263(PA).
    10. Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
    11. Nikpour, Ahmad & Nateghi, Abolfazl & Shafie-khah, Miadreza & Catalão, João P.S., 2021. "Day-ahead optimal bidding of microgrids considering uncertainties of price and renewable energy resources," Energy, Elsevier, vol. 227(C).
    12. Zhang, Yajun & Gu, Chenghong & Yan, Xiaohe & Li, Furong, 2020. "Cournot oligopoly game-based local energy trading considering renewable energy uncertainty costs," Renewable Energy, Elsevier, vol. 159(C), pages 1117-1127.
    13. Aumann, Robert J., 1995. "Backward induction and common knowledge of rationality," Games and Economic Behavior, Elsevier, vol. 8(1), pages 6-19.
    14. Maniatis, Georgios I. & Milonas, Nikolaos T., 2022. "The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece," Energy Policy, Elsevier, vol. 170(C).
    15. Chen, Weidong & Wang, Junnan & Yu, Guanyi & Chen, Jiajia & Hu, Yumeng, 2022. "Research on day-ahead transactions between multi-microgrid based on cooperative game model," Applied Energy, Elsevier, vol. 316(C).
    16. Arega Getaneh Abate & Rossana Riccardi & Carlos Ruiz, 2022. "Contract design in electricity markets with high penetration of renewables: A two-stage approach," Papers 2201.09927, arXiv.org, revised Jun 2022.
    17. Liu, Tingting & Xu, Jiuping, 2021. "Equilibrium strategy based policy shifts towards the integration of wind power in spot electricity markets: A perspective from China," Energy Policy, Elsevier, vol. 157(C).
    18. Blaise Allaz, 1992. "Oligopoly, uncertainty and strategic forward transactions," Post-Print hal-00511812, HAL.
    19. Scheben, Heike & Hufendiek, Kai, 2023. "Modelling power prices in markets with high shares of renewable energies and storages—The Norwegian example," Energy, Elsevier, vol. 267(C).
    20. Johnathon, Chris & Agalgaonkar, Ashish Prakash & Planiden, Chayne & Kennedy, Joel, 2023. "A proposed hedge-based energy market model to manage renewable intermittency," Renewable Energy, Elsevier, vol. 207(C), pages 376-384.
    21. Tsimopoulos, Evangelos G. & Georgiadis, Michael C., 2021. "Nash equilibria in electricity pool markets with large-scale wind power integration," Energy, Elsevier, vol. 228(C).
    22. Genc, Talat S. & Thille, Henry & ElMawazini, Khaled, 2020. "Dynamic competition in electricity markets under uncertainty," Energy Economics, Elsevier, vol. 90(C).
    23. Oliveira, Fernando S. & Ruiz, Carlos, 2021. "Analysis of futures and spot electricity markets under risk aversion," European Journal of Operational Research, Elsevier, vol. 291(3), pages 1132-1148.
    24. Zhang, Sufang & Andrews-Speed, Philip & Li, Sitao, 2018. "To what extent will China's ongoing electricity market reforms assist the integration of renewable energy?," Energy Policy, Elsevier, vol. 114(C), pages 165-172.
    25. Tamás, Mészáros Mátyás & Bade Shrestha, S.O. & Zhou, Huizhong, 2010. "Feed-in tariff and tradable green certificate in oligopoly," Energy Policy, Elsevier, vol. 38(8), pages 4040-4047, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abate, Arega Getaneh & Riccardi, Rossana & Ruiz, Carlos, 2022. "Contract design in electricity markets with high penetration of renewables: A two-stage approach," Omega, Elsevier, vol. 111(C).
    2. Arega Getaneh Abate & Rossana Riccardi & Carlos Ruiz, 2022. "Contract design in electricity markets with high penetration of renewables: A two-stage approach," Papers 2201.09927, arXiv.org, revised Jun 2022.
    3. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
    4. Udo Broll & Peter Welzel & Kit Pong Wong, 1999. "Strategic Hedging," Working Paper Series B 1999-04, Friedrich Schiller University of Jena, School of of Economics and Business Administration.
    5. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
    6. Adilov, Nodir, 2012. "Strategic use of forward contracts and capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 164-173.
    7. Feng, Wenxiu & Ruiz Mora, Carlos, 2023. "Risk Management of Energy Communities with Hydrogen Production and Storage Technologies," DES - Working Papers. Statistics and Econometrics. WS 36274, Universidad Carlos III de Madrid. Departamento de Estadística.
    8. Moiseeva, Ekaterina & Wogrin, Sonja & Hesamzadeh, Mohammad Reza, 2017. "Generation flexibility in ramp rates: Strategic behavior and lessons for electricity market design," European Journal of Operational Research, Elsevier, vol. 261(2), pages 755-771.
    9. Falbo, Paolo & Ruiz, Carlos, 2019. "Optimal sales-mix and generation plan in a two-stage electricity market," Energy Economics, Elsevier, vol. 78(C), pages 598-614.
    10. Safarzyńska, Karolina & van den Bergh, Jeroen C.J.M., 2018. "A higher rebound effect under bounded rationality: Interactions between car mobility and electricity generation," Energy Economics, Elsevier, vol. 74(C), pages 179-196.
    11. Léautier, Thomas-Olivier & Rochet, Jean-Charles, 2014. "On the strategic value of risk management," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 153-169.
    12. Gersema, Gerke & Wozabal, David, 2017. "An equilibrium pricing model for wind power futures," Energy Economics, Elsevier, vol. 65(C), pages 64-74.
    13. Bolle, Friedel, 2001. "Competition with supply and demand functions," Energy Economics, Elsevier, vol. 23(3), pages 253-277, May.
    14. Nathan H. Miller & Joseph U. Podwol, 2020. "Forward Contracts, Market Structure and the Welfare Effects of Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 68(2), pages 364-407, June.
    15. Herguera, Inigo, 2000. "Bilateral contracts and the spot market for electricity: some observations on the British and the NordPool experiences," Utilities Policy, Elsevier, vol. 9(2), pages 73-80, June.
    16. Miglo, Anton, 2018. "Crowdfunding in a duopoly under asymmetric information," MPRA Paper 89016, University Library of Munich, Germany.
    17. Uday V. Shanbhag & Gerd Infanger & Peter W. Glynn, 2011. "A Complementarity Framework for Forward Contracting Under Uncertainty," Operations Research, INFORMS, vol. 59(4), pages 810-834, August.
    18. Matthias Pelster, 2014. "Implications of financial transaction costs on the real economy: A note," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(1), March.
    19. Broll, Udo & Wahl, Jack E. & Wessel, Christoph, 2008. "Export production, hedging exchange rate risk: the duopoly case," Dresden Discussion Paper Series in Economics 06/08, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    20. Remco van Eijkel & Jose Luis Moraga, 2010. "Do Firms sell forward for Strategic Reasons? An Application to the Wholesale Market for Natural Gas," Tinbergen Institute Discussion Papers 10-058/1, Tinbergen Institute.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:353:y:2024:i:pb:s0306261923015040. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.