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The market value of variable renewables

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  • Hirth, Lion

Abstract

This paper provides a comprehensive discussion of the market value of variable renewable energy (VRE). The inherent variability of wind speeds and solar radiation affects the price that VRE generators receive on the market (market value). During windy and sunny times the additional electricity supply reduces the prices. Because the drop is larger with more installed capacity, the market value of VRE falls with higher penetration rate. This study aims to develop a better understanding on how the market value with penetration, and how policies and prices affect the market value. Quantitative evidence is derived from a review of published studies, regression analysis of market data, and the calibrated model of the European electricity market EMMA. We find the value of wind power to fall from 110% of the average power price to 50–80% as wind penetration increases from zero to 30% of total electricity consumption. For solar power, similarly low value levels are reached already at 15% penetration. Hence, competitive large-scale renewable deployment will be more difficult to accomplish than as many anticipate.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 38 (2013)
Issue (Month): C ()
Pages: 218-236

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Handle: RePEc:eee:eneeco:v:38:y:2013:i:c:p:218-236

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Variable renewables; Wind and Solar power; Market integration of renewables; Electricity markets; Intermittency; Cost -benefit analysis;

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Citations

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Cited by:
  1. Schmid, Eva & Pahle, Michael & Knopf, Brigitte, 2013. "Renewable electricity generation in Germany: A meta-analysis of mitigation scenarios," Energy Policy, Elsevier, vol. 61(C), pages 1151-1163.
  2. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  3. Luis M. Abadie & José M. Chamorro, . "Valuation of wind energy projects: A real options approach," Working Papers 2012-11, BC3.
  4. Lion Hirth & Falko Ueckerdt & Ottmar Edenhofer, 2014. "Why Wind Is Not Coal: On the Economics of Electricity," Working Papers 2014.39, Fondazione Eni Enrico Mattei.
  5. Lion Hirth, 2013. "The Optimal Share of Variable Renewables. How the Variability of Wind and Solar Power Affects their Welfare-optimal Deployment," Working Papers 2013.90, Fondazione Eni Enrico Mattei.
  6. Wolf-Peter Schill, 2013. "Residual Load, Renewable Surplus Generation and Storage Requirements in Germany," Discussion Papers of DIW Berlin 1316, DIW Berlin, German Institute for Economic Research.
  7. Lion Hirth & Inka Ziegenhagen, 2013. "Control Power and Variable Renewables A Glimpse at German Data," Working Papers 2013.46, Fondazione Eni Enrico Mattei.
  8. Edenhofer, Ottmar & Hirth, Lion & Knopf, Brigitte & Pahle, Michael & Schlömer, Steffen & Schmid, Eva & Ueckerdt, Falko, 2013. "On the economics of renewable energy sources," Energy Economics, Elsevier, vol. 40(S1), pages S12-S23.
  9. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex.
  10. Lion Hirth & Falko Ueckerdt, 2012. "Redistribution Effects of Energy and Climate Policy: The Electricity Market," Working Papers 2012.82, Fondazione Eni Enrico Mattei.
  11. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
  12. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages S159-S171.

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