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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.

Suggested Citation

  • Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  • Handle: RePEc:eee:eneeco:v:38:y:2013:i:c:p:218-236
    DOI: 10.1016/j.eneco.2013.02.004
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    More about this item

    Keywords

    Variable renewables; Wind and Solar power; Market integration of renewables; Electricity markets; Intermittency; Cost -benefit analysis;
    All these keywords.

    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, Pricing, and Design - - - General

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