IDEAS home Printed from https://ideas.repec.org/a/nat/natene/v10y2025i3d10.1038_s41560-025-01704-0.html
   My bibliography  Save this article

Power price stability and the insurance value of renewable technologies

Author

Listed:
  • Daniel Navia Simon

    (University of Cambridge
    World Bank)

  • Laura Diaz Anadon

    (University of Cambridge
    Harvard University)

Abstract

To understand if renewables stabilize or destabilize electricity prices, we simulate European power markets as projected by the National Energy and Climate Plans for 2030 but replicating the historical variability in electricity demand, the prices of fossil fuels and weather. We propose a β-sensitivity metric, defined as the projected increase in the average annual price of electricity when the price of natural gas increases by 1 euro. We show that annual power prices spikes would be more moderate because the β-sensitivity would fall from 1.4 euros to 1 euro. Deployment of solar photovoltaic and wind technologies exceeding 30% of the 2030 target would lower it further, below 0.5 euros. Our framework shows that this stabilization of prices would produce social welfare gains, that is, we find an insurance value of renewables. Because market mechanisms do not internalize this value, we argue that it should be explicitly considered in energy policy decisions.

Suggested Citation

  • Daniel Navia Simon & Laura Diaz Anadon, 2025. "Power price stability and the insurance value of renewable technologies," Nature Energy, Nature, vol. 10(3), pages 329-341, March.
    • Handle: RePEc:nat:natene:v:10:y:2025:i:3:d:10.1038_s41560-025-01704-0
    DOI: 10.1038/s41560-025-01704-0
    as

    Download full text from publisher

    File URL: https://www.nature.com/articles/s41560-025-01704-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1038/s41560-025-01704-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Klinge Jacobsen, Henrik & Zvingilaite, Erika, 2010. "Reducing the market impact of large shares of intermittent energy in Denmark," Energy Policy, Elsevier, vol. 38(7), pages 3403-3413, July.
    2. Jåstad, Eirik Ogner & Trotter, Ian M. & Bolkesjø, Torjus Folsland, 2022. "Long term power prices and renewable energy market values in Norway – A probabilistic approach," Energy Economics, Elsevier, vol. 112(C).
    3. Winkler, Jenny & Pudlik, Martin & Ragwitz, Mario & Pfluger, Benjamin, 2016. "The market value of renewable electricity – Which factors really matter?," Applied Energy, Elsevier, vol. 184(C), pages 464-481.
    4. Jacob Mays & David P. Morton & Richard P. O’Neill, 2019. "Asymmetric risk and fuel neutrality in electricity capacity markets," Nature Energy, Nature, vol. 4(11), pages 948-956, November.
    5. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    6. Newbery, D., 2023. "High renewable electricity penetration: marginal curtailment and market failure under "subsidy-free" entry," Cambridge Working Papers in Economics 2353, Faculty of Economics, University of Cambridge.
    7. John E. T. Bistline & Neil R. Mehrotra & Catherine Wolfram, 2023. "Economic Implications of the Climate Provisions of the Inflation Reduction Act," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 54(1 (Spring), pages 77-182.
    8. Nestor A. Sepulveda & Jesse D. Jenkins & Aurora Edington & Dharik S. Mallapragada & Richard K. Lester, 2021. "The design space for long-duration energy storage in decarbonized power systems," Nature Energy, Nature, vol. 6(5), pages 506-516, May.
    9. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    10. J.-F. Mercure & P. Salas & P. Vercoulen & G. Semieniuk & A. Lam & H. Pollitt & P. B. Holden & N. Vakilifard & U. Chewpreecha & N. R. Edwards & J. E. Vinuales, 2021. "Reframing incentives for climate policy action," Nature Energy, Nature, vol. 6(12), pages 1133-1143, December.
    11. Mallapragada, Dharik S. & Junge, Cristian & Wang, Cathy & Pfeifenberger, Hannes & Joskow, Paul L. & Schmalensee, Richard, 2023. "Electricity pricing challenges in future renewables-dominant power systems," Energy Economics, Elsevier, vol. 126(C).
    12. David Newbery, 2023. "High renewable electricity penetration: marginal curtailment and market failure under "subsidy-free" entry," Working Papers EPRG2319, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    13. López Prol, Javier & Steininger, Karl W. & Zilberman, David, 2020. "The cannibalization effect of wind and solar in the California wholesale electricity market," Energy Economics, Elsevier, vol. 85(C).
    14. Eike Blume-Werry, Thomas Faber, Lion Hirth, Claus Huber, and Martin Everts, 2021. "Eyes on the Price: Which Power Generation Technologies Set the Market Price?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    15. Angelica Gianfreda & Giacomo Scandolo & Derek W. Bunn, 2022. "Higher moments in the fundamental specification of electricity forward prices," Quantitative Finance, Taylor & Francis Journals, vol. 22(11), pages 2063-2078, November.
    16. Tveten, Åsa Grytli & Bolkesjø, Torjus Folsland & Martinsen, Thomas & Hvarnes, Håvard, 2013. "Solar feed-in tariffs and the merit order effect: A study of the German electricity market," Energy Policy, Elsevier, vol. 61(C), pages 761-770.
    17. Brown, Stephen P.A. & Huntington, Hillard G., 2013. "Assessing the U.S. oil security premium," Energy Economics, Elsevier, vol. 38(C), pages 118-127.
    18. Robert J. Barro, 2009. "Rare Disasters, Asset Prices, and Welfare Costs," American Economic Review, American Economic Association, vol. 99(1), pages 243-264, March.
    19. 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.
    20. Michael Grubb & Paul Drummond & Serguey Maximov, 2022. "Separating electricity from gas prices through Green Power Pools: Design options and evolution," Working Papers Series inetwp193, Institute for New Economic Thinking.
    21. Jos� I. Mu�oz & Derek W. Bunn, 2013. "Investment risk and return under renewable decarbonization of a power market," Climate Policy, Taylor & Francis Journals, vol. 13(sup01), pages 87-105, March.
    22. Philip J. Heptonstall & Robert J. K. Gross, 2021. "A systematic review of the costs and impacts of integrating variable renewables into power grids," Nature Energy, Nature, vol. 6(1), pages 72-83, January.
    23. Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).
    24. Peña, Juan Ignacio & Rodríguez, Rosa & Mayoral, Silvia, 2022. "Cannibalization, depredation, and market remuneration of power plants," Energy Policy, Elsevier, vol. 167(C).
    25. Angelica Gianfreda & Derek Bunn, 2018. "A Stochastic Latent Moment Model for Electricity Price Formation," BEMPS - Bozen Economics & Management Paper Series BEMPS46, Faculty of Economics and Management at the Free University of Bozen.
    26. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2024. "Disasters Everywhere: The Costs of Business Cycles Reconsidered," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 116-151, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Milstein, I. & Tishler, A. & Woo, C.K., 2024. "The effect of PV generation's hourly variations on Israel's solar investment," Energy Economics, Elsevier, vol. 136(C).
    2. Veenstra, Arjen T. & Mulder, Machiel, 2024. "Impact of Contracts for Differences for non-carbon electricity generation on efficiency of electricity market," Energy Economics, Elsevier, vol. 136(C).
    3. Peña, Juan Ignacio & Rodríguez, Rosa & Mayoral, Silvia, 2022. "Cannibalization, depredation, and market remuneration of power plants," Energy Policy, Elsevier, vol. 167(C).
    4. Tourgeman, Miriam & Cohen, Chen & Rubin, Ofir, 2024. "Preserving competition and economic welfare in Israel's PV market," Utilities Policy, Elsevier, vol. 91(C).
    5. Rinne, Sonja, 2024. "Estimating the merit-order effect using coarsened exact matching: Reconciling theory with the empirical results to improve policy implications," Energy Policy, Elsevier, vol. 185(C).
    6. Ketterer, Janina C., 2014. "The impact of wind power generation on the electricity price in Germany," Energy Economics, Elsevier, vol. 44(C), pages 270-280.
    7. Davi-Arderius, Daniel & Jamasb, Tooraj, 2024. "Measuring a Paradox: Zero-negative Electricity Prices," Working Papers 13-2024, Copenhagen Business School, Department of Economics.
    8. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).
    9. Glenk, Gunther & Reichelstein, Stefan, 2021. "Intermittent versus dispatchable power sources: An integrated competitive assessment," ZEW Discussion Papers 21-065, ZEW - Leibniz Centre for European Economic Research.
    10. Simshauser, P. & Gohde, N., 2024. "3-Party Covenant Financing of 'Semi-Regulated' Pumped Hydro Assets," Cambridge Working Papers in Economics 2425, Faculty of Economics, University of Cambridge.
    11. 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.
    12. Simshauser, Paul, 2025. "Competition vs. coordination: Optimising wind, solar and batteries in renewable energy zones," Energy Economics, Elsevier, vol. 143(C).
    13. Ajanaku, Bolarinwa A. & Collins, Alan R., 2024. "“Comparing merit order effects of wind penetration across wholesale electricity markets”," Renewable Energy, Elsevier, vol. 226(C).
    14. Schöniger, Franziska & Morawetz, Ulrich B., 2022. "What comes down must go up: Why fluctuating renewable energy does not necessarily increase electricity spot price variance in Europe," Energy Economics, Elsevier, vol. 111(C).
    15. Qiao, Qiao & Zeng, Xianhai & Lin, Boqiang, 2024. "Mitigating wind curtailment risk in China: The impact of subsidy reduction policy," Applied Energy, Elsevier, vol. 368(C).
    16. Hartner, Michael & Permoser, Andreas, 2018. "Through the valley: The impact of PV penetration levels on price volatility and resulting revenues for storage plants," Renewable Energy, Elsevier, vol. 115(C), pages 1184-1195.
    17. Hassanzadeh Moghimi, Farzad & Boomsma, Trine K. & Siddiqui, Afzal S., 2024. "Transmission planning in an imperfectly competitive power sector with environmental externalities," Energy Economics, Elsevier, vol. 134(C).
    18. Sapio, Alessandro, 2019. "Greener, more integrated, and less volatile? A quantile regression analysis of Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 126(C), pages 452-469.
    19. Chen, Jing & Wang, Yushi & Xu, Yangyi & Shi, Jingyi, 2025. "Dual-credit policy failure: The emergence principle and hedging mechanisms," Energy Economics, Elsevier, vol. 141(C).
    20. de Menezes, Lilian M. & Houllier, Melanie A., 2015. "Germany's nuclear power plant closures and the integration of electricity markets in Europe," Energy Policy, Elsevier, vol. 85(C), pages 357-368.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nat:natene:v:10:y:2025:i:3:d:10.1038_s41560-025-01704-0. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.nature.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.