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Market‐wide impact of renewables on electricity prices in Australia

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  • Ricardo Gonçalves
  • Flávio Menezes

Abstract

This paper estimates the market‐wide impact of utility‐scale renewables on Australia's National Electricity Market (NEM) wholesale prices from 2009 to 2020. The goal is to understand the medium‐run impact of renewable generation, as opposed to the short‐run impact of weather‐driven changes in renewable output. The focus is, therefore, on the relationship between renewable generation (and its growth) and wholesale prices over a long period of time. In particular, we exploit the half‐hourly nature of wholesale price setting in the NEM to uncover the impact of solar and wind daily production on the distribution of prices throughout the day. In contrast to the merit‐order effect literature, which focuses on the short‐run (contemporaneous) impact of renewables, our results suggest that the total daily solar production has a positive, although not always significant, impact on wholesale prices throughout the day during an early development stage of solar generation. For a more recent period, following a substantive increase in utility‐scale solar generation, the results are more in line with the merit‐order effect literature with total daily solar production reducing wholesale prices for most of the day. This impact, however, is of several orders of magnitude lower than that predicted in the literature. We also show that the daily production of wind has a small negative impact on wholesale prices for most of the day, throughout the entire period of analysis.

Suggested Citation

  • Ricardo Gonçalves & Flávio Menezes, 2022. "Market‐wide impact of renewables on electricity prices in Australia," The Economic Record, The Economic Society of Australia, vol. 98(320), pages 1-21, March.
  • Handle: RePEc:bla:ecorec:v:98:y:2022:i:320:p:1-21
    DOI: 10.1111/1475-4932.12642
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    1. Ricardo Gonçalves & Flavio M. Menezes, 2022. "The price impacts of the exit of the Hazelwood coal power plant," Discussion Papers Series 654, School of Economics, University of Queensland, Australia.

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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