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The dark side of the sun: How solar power production affects the market value of solar and gas sources

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  • Clò, Stefano
  • D'Adamo, Gaetano

Abstract

Using daily data for the Italian wholesale day-ahead power market over the period 2008–2013, we assess the impact of solar production on the market value of solar and gas sources, defined using the concepts of value factor and unit revenues. We find that, on average, solar generation negatively affects the solar source market value, causing a departure from the grid parity condition and mining their competitiveness once public incentives are removed. This negative relation is not constant over time and becomes stronger for increasing solar penetration in the energy mix. Interestingly, the opposite is found when looking at gas. While the relation between solar production and the gas market value is negative or not significant when the former is low, it turns positive for higher levels of solar production. This is the result of a change in gas producers' bidding strategies. Indeed, in the Italian power market the highest hourly price has shifted from the peak daytime, when solar production is concentrated, to the off-peak nighttime, when solar is absent from the market and gas can exploit temporary market power.

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  • Clò, Stefano & D'Adamo, Gaetano, 2015. "The dark side of the sun: How solar power production affects the market value of solar and gas sources," Energy Economics, Elsevier, vol. 49(C), pages 523-530.
    • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:523-530
    DOI: 10.1016/j.eneco.2015.03.025
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    Cited by:

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    2. Harrison-Atlas, Dylan & Murphy, Caitlin & Schleifer, Anna & Grue, Nicholas, 2022. "Temporal complementarity and value of wind-PV hybrid systems across the United States," Renewable Energy, Elsevier, vol. 201(P1), pages 111-123.
    3. Zou, Hongyang & Du, Huibin & Brown, Marilyn A. & Mao, Guozhu, 2017. "Large-scale PV power generation in China: A grid parity and techno-economic analysis," Energy, Elsevier, vol. 134(C), pages 256-268.
    4. Bernath, Christiane & Deac, Gerda & Sensfuß, Frank, 2021. "Impact of sector coupling on the market value of renewable energies – A model-based scenario analysis," Applied Energy, Elsevier, vol. 281(C).
    5. Javier L'opez Prol & Wolf-Peter Schill, 2020. "The Economics of Variable Renewables and Electricity Storage," Papers 2012.15371, arXiv.org.
    6. Angelica, Gianfreda & Lucia, Parisio & Matteo, Pelagatti, 2017. "The RES-induced Switching Effect Across Fossil Fuels: An Analysis of the Italian Day-Ahead and Balancing Prices and Their Connected Costs," Working Papers 360, University of Milano-Bicocca, Department of Economics, revised 03 Feb 2017.
    7. Valitov, Niyaz, 2019. "Risk premia in the German day-ahead electricity market revisited: The impact of negative prices," Energy Economics, Elsevier, vol. 82(C), pages 70-77.

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    More about this item

    Keywords

    Renewable energy sources; Italian power market; Electricity price; Value factor;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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