The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price
AbstractThis 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 wind 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 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 percent of the average power price to 50-80 percent as wind penetration increases from zero to 30 percent of total electricity consumption. For solar power, similarly low values levels are reached already at 15 percent penetration. Hence, competitive large-scale renewables deployment will be more difficult to accomplish than many anticipate.• The variability of solar and wind power affects their market value.• The market value of variable renewables falls with higher penetration rates.• We quantify the reduction with market data, numerical modeling, and a lit review.• At 30% penetration, wind power is worth only 50-80% of a constant power source.
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Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2013/36.
Date of creation: May 2013
Date of revision:
Variable renewables; wind power; solar power; power system modeling; market integration of renewables; electricity markets; intermittency; competitiveness of renewables; cost-benefit analysis;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- D40 - Microeconomics - - Market Structure and Pricing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-ENE-2013-09-26 (Energy Economics)
- NEP-REG-2013-09-26 (Regulation)
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