The market value of variable renewables
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Neuhoff, K. & Ehrenmann, A. & Butler, L. & Cust, J. & Hoexter, H. & Keats, K. & Kreczko,A. & Sinden, G., 2006.
"Space and Time: Wind in an Investment Planning Model,"
Cambridge Working Papers in Economics
0620, Faculty of Economics, University of Cambridge.
- Neuhoff, Karsten & Ehrenmann, Andreas & Butler, Lucy & Cust, Jim & Hoexter, Harriet & Keats, Kim & Kreczko, Adam & Sinden, Graham, 2008. "Space and time: Wind in an investment planning model," Energy Economics, Elsevier, vol. 30(4), pages 1990-2008, July.
- Sáenz de Miera, Gonzalo & del Rio González, Pablo & Vizcaino, Ignacio, 2008. "Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain," Energy Policy, Elsevier, vol. 36(9), pages 3345-3359, September.
- Paul L. Joskow, 2010.
"Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies,"
1013, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-41, May.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," RSCAS Working Papers 2011/45, European University Institute.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," EUI-RSCAS Working Papers 45, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Lamont, Alan D., 2008. "Assessing the long-term system value of intermittent electric generation technologies," Energy Economics, Elsevier, vol. 30(3), pages 1208-1231, May.
- Unger, Thomas & Ahlgren, Erik O., 2005. "Impacts of a common green certificate market on electricity and CO2-emission markets in the Nordic countries," Energy Policy, Elsevier, vol. 33(16), pages 2152-2163, November.
- Severin Borenstein, 2011.
"The Private and Public Economics of Renewable Electricity Generation,"
NBER Working Papers
17695, National Bureau of Economic Research, Inc.
- Severin Borenstein, 2012. "The Private and Public Economics of Renewable Electricity Generation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 67-92, Winter.
- Ueckerdt, Falko & Hirth, Lion & Luderer, Gunnar & Edenhofer, Ottmar, 2013. "System LCOE: What are the costs of variable renewables?," Energy, Elsevier, vol. 63(C), pages 61-75.
- DeCarolis, Joseph F. & Keith, David W., 2006. "The economics of large-scale wind power in a carbon constrained world," Energy Policy, Elsevier, vol. 34(4), pages 395-410, March.
- Green, Richard & Vasilakos, Nicholas, 2010.
"Market behaviour with large amounts of intermittent generation,"
Elsevier, vol. 38(7), pages 3211-3220, July.
- Richard Green & Nicholas Vasilakos, 2008. "Market Behaviour with Large Amounts of Intermittent Generation," Discussion Papers 08-08, Department of Economics, University of Birmingham.
- Twomey, Paul & Neuhoff, Karsten, 2010. "Wind power and market power in competitive markets," Energy Policy, Elsevier, vol. 38(7), pages 3198-3210, July.
- Lion Hirth, 2012.
"The Market Value of Variable Renewables,"
2012.15, Fondazione Eni Enrico Mattei.
- Denholm, Paul & Margolis, Robert M., 2007. "Evaluating the limits of solar photovoltaics (PV) in traditional electric power systems," Energy Policy, Elsevier, vol. 35(5), pages 2852-2861, May.
- Gil, Hugo A. & Gomez-Quiles, Catalina & Riquelme, Jesus, 2012. "Large-scale wind power integration and wholesale electricity trading benefits: Estimation via an ex post approach," Energy Policy, Elsevier, vol. 41(C), pages 849-859.
- Brown, Sarah J. & Rowlands, Ian H., 2009. "Nodal pricing in Ontario, Canada: Implications for solar PV electricity," Renewable Energy, Elsevier, vol. 34(1), pages 170-178.
- Martin, Brian & Diesendorf, Mark, 1983. "The economics of large-scale wind power in the UK A model of an optimally mixed CEGB electricity grid," Energy Policy, Elsevier, vol. 11(3), pages 259-266, September.
- James Bushnell, 2011.
"Building Blocks: Investment in Renewable and Nonrenewable Technologies,"
RSCAS Working Papers
2011/53, European University Institute.
- Bushnell, James, 2010. "Building Blocks: Investment in Renewable and Non-Renewable Technologies," Staff General Research Papers 31546, Iowa State University, Department of Economics.
- Boccard, Nicolas, 2010. "Economic properties of wind power: A European assessment," Energy Policy, Elsevier, vol. 38(7), pages 3232-3244, July.
- Hirth, Lion & Ueckerdt, Falko, 2013.
"Redistribution effects of energy and climate policy: The electricity market,"
Elsevier, vol. 62(C), pages 934-947.
- Lion Hirth & Falko Ueckerdt, 2012. "Redistribution Effects of Energy and Climate Policy: The Electricity Market," Working Papers 2012.82, Fondazione Eni Enrico Mattei.
- O'Mahoney, Amy & Denny, Eleanor, 2011. "The Merit Order Effect of Wind Generation on the Irish Electricity Market," MPRA Paper 56043, University Library of Munich, Germany.
- Hirst, Eric & Hild, Jeffrey, 2004. "The Value of Wind Energy as a Function of Wind Capacity," The Electricity Journal, Elsevier, vol. 17(6), pages 11-20, July.
- Weigt, Hannes, 2008.
"Germany’s Wind Energy: The Potential for Fossil Capacity Replacement and Cost Saving,"
65659, University Library of Munich, Germany.
- Weigt, Hannes, 2009. "Germany's wind energy: The potential for fossil capacity replacement and cost saving," Applied Energy, Elsevier, vol. 86(10), pages 1857-1863, October.
- Woo, C.K. & Horowitz, I. & Moore, J. & Pacheco, A., 2011. "The impact of wind generation on the electricity spot-market price level and variance: The Texas experience," Energy Policy, Elsevier, vol. 39(7), pages 3939-3944, July.
- Jónsson, Tryggvi & Pinson, Pierre & Madsen, Henrik, 2010. "On the market impact of wind energy forecasts," Energy Economics, Elsevier, vol. 32(2), pages 313-320, March.
- Carlo Obersteiner, 2012. "The Influence of interconnection capacity on the market value of wind power," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 1(2), pages 225-232, 09.
- Richard Green & Nicholas Vasilakos, 2011. "The Long-term Impact of Wind Power on Electricity Prices and Generating Capacity," Discussion Papers 11-09, Department of Economics, University of Birmingham.
- Ramteen Sioshansi, 2011. "Increasing the Value of Wind with Energy Storage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-30.
- MacCormack, John & Hollis, Aidan & Zareipour, Hamidreza & Rosehart, William, 2010. "The large-scale integration of wind generation: Impacts on price, reliability and dispatchable conventional suppliers," Energy Policy, Elsevier, vol. 38(7), pages 3837-3846, July.
- Timothy D. Mount, Surin Maneevitjit, Alberto J. Lamadrid, Ray D. Zimmerman, and Robert J. Thomas, 2012.
"The Hidden System Costs of Wind Generation in a Deregulated Electricity Market,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 1).
- Mount, Timothy D. & Maneevitjit, Surin & Lamadrid, Alberto J. & Zimmerman, Ray D. & Thomas, Robert J., 2011. "The Hidden System Costs Of Wind Generation In A Deregulated Electricity Market," Working Papers 126529, Cornell University, Department of Applied Economics and Management.
- Rosen, Johannes & Tietze-Stöckinger, Ingela & Rentz, Otto, 2007. "Model-based analysis of effects from large-scale wind power production," Energy, Elsevier, vol. 32(4), pages 575-583.
- Munksgaard, Jesper & Morthorst, Poul Erik, 2008. "Wind power in the Danish liberalised power market--Policy measures, price impact and investor incentives," Energy Policy, Elsevier, vol. 36(10), pages 3940-3947, October.
- Olsina, Fernando & Roscher, Mark & Larisson, Carlos & Garces, Francisco, 2007. "Short-term optimal wind power generation capacity in liberalized electricity markets," Energy Policy, Elsevier, vol. 35(2), pages 1257-1273, February.
- Richard Green & Nicholas Vasilakos, 2010.
"Storing Wind for a Rainy Day: What Kind of Electricity Does Denmark Export?,"
10-19, Department of Economics, University of Birmingham.
- Richard Green and Nicholas Vasilakos, 2012. "Storing Wind for a Rainy Day: What Kind of Electricity Does Denmark Export?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
- Bode, Sven, 2006. "On the impact of renewable energy support schemes on power prices," HWWI Research Papers 4-7, .
- Rathmann, M., 2007. "Do support systems for RES-E reduce EU-ETS-driven electricity prices?," Energy Policy, Elsevier, vol. 35(1), pages 342-349, January.
- Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-48, November.
- DeCesaro, Jennifer & Porter, Kevin & Milligan, Michael, 2009. "Wind Energy and Power System Operations: A Review of Wind Integration Studies to Date," The Electricity Journal, Elsevier, vol. 22(10), pages 34-43, December.
- Gautam Gowrisankaran & Stanley S. Reynolds & Mario Samano, 2011. "Intermittency and the Value of Renewable Energy," NBER Working Papers 17086, National Bureau of Economic Research, Inc.
- Tuohy, A. & O'Malley, M., 2011. "Pumped storage in systems with very high wind penetration," Energy Policy, Elsevier, vol. 39(4), pages 1965-1974, April.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:38:y:2013:i:c:p:218-236. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.