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The Optimal Share of Variable Renewables: How the Variability of Wind and Solar Power affects their Welfare-optimal Deployment

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  • Lion Hirth

Abstract

This paper estimates the welfare-optimal market share of wind and solar power, explicitly taking into account their output variability. We present a theoretical valuation framework that consistently accounts for the impact of fluctuations over time, forecast errors, and the location of generators in the power grid on the marginal value of electricity from renewables. Then the optimal share of wind and solar power in Northwestern Europe’s generation mix is estimated from a calibrated numerical model. We find the optimal long-term wind share to be 20%, three times more than today; however, we also find significant parameter uncertainty. Variability significantly impacts results: if winds were constant, the optimal share would be 60%. In addition, the effect of technological change, price shocks, and policies on the optimal share is assessed. We present and explain several surprising findings, including a negative impact of CO2 prices on optimal wind deployment.

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  • Lion Hirth, 2015. "The Optimal Share of Variable Renewables: How the Variability of Wind and Solar Power affects their Welfare-optimal Deployment," The Energy Journal, , vol. 36(1), pages 149-184, January.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:1:p:149-184
    DOI: 10.5547/01956574.36.1.6
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    1. Nagl, Stephan & Fürsch, Michaela & Lindenberger, Dietmar, 2012. "The costs of electricity systems with a high share of fluctuating renewables - a stochastic investment and dispatch optimization model for Europe," EWI Working Papers 2012-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    2. Nelson, James & Johnston, Josiah & Mileva, Ana & Fripp, Matthias & Hoffman, Ian & Petros-Good, Autumn & Blanco, Christian & Kammen, Daniel M., 2012. "High-resolution modeling of the western North American power system demonstrates low-cost and low-carbon futures," Energy Policy, Elsevier, vol. 43(C), pages 436-447.
    3. 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.
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    1. 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).

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