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An Electricity Market Model with Intermittent Power

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  • Rögnvaldur Hannesson

    (Norwegian School of Economics, Helleveien 30, N-5045 Bergen, Norway)

Abstract

A competitive electricity market model is used to analyze the effects of replacing conventional base load power with an intermittent power supply. The model is a conceptual one and uses linear demand curves with a triangular probability distribution. In a base reference case, there are two types of providers of electricity, base load providers and peak load providers, each with a constant marginal cost. Prices are determined by the highest marginal cost of the active providers or by what the market can bear. The production capacity of each type of provider is determined by rents being equal to fixed costs. This reference case is compared to a case where base load providers have been replaced by intermittent solar and wind energy, with peak load providers still active. Despite lower costs, intermittent power is likely to result in higher and more volatile prices of electricity. Lower electricity prices could result if conventional baseload power is sufficiently expensive. The implications of changes in the availability of intermittent power are also analyzed.

Suggested Citation

  • Rögnvaldur Hannesson, 2025. "An Electricity Market Model with Intermittent Power," Energies, MDPI, vol. 18(6), pages 1-11, March.
    • Handle: RePEc:gam:jeners:v:18:y:2025:i:6:p:1435-:d:1612389
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    References listed on IDEAS

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    1. David Wozabal & Christoph Graf & David Hirschmann, 2016. "The effect of intermittent renewables on the electricity price variance," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 38(3), pages 687-709, July.
    2. Guerra, K. & Haro, P. & Gutiérrez, R.E. & Gómez-Barea, A., 2022. "Facing the high share of variable renewable energy in the power system: Flexibility and stability requirements," Applied Energy, Elsevier, vol. 310(C).
    3. Maciejowska, Katarzyna, 2020. "Assessing the impact of renewable energy sources on the electricity price level and variability – A quantile regression approach," Energy Economics, Elsevier, vol. 85(C).
    4. Petter Osmundsen & Magne Emhjellen-Stendal & Sindre Lorentzen, 2024. "Oil Company Investment in Offshore Windfarms: A Business Case," The Energy Journal, , vol. 45(2), pages 111-136, March.
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