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Welfare optimal reliability and reserve provision in electricity markets with increasing shares of renewable energy sources

Author

Listed:
  • Fridrik Mar Baldursson

    ()

  • Julia Bellenbaum

    ()

  • Ewa Lazarczyk

    ()

  • Lenja Niesen

    ()

  • Christoph Weber

    () (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))

Abstract

We develop an analytical model to derive the competitive market equilibrium for electricity spot and reserve markets under stochastic demand and uncertain renewable electricity generation. We then derive the welfare-optimal provision of reserves. At rst-best, cost of reserve capacity is balanced against expected cost of outages. The rst-best market equilibrium of the model implies an increase of reserve provision with a growing share of renewable generation. Furthermore, a growing share of renewable generation decreases the level of reliability as measured in energy not served. Additionally, required reserves to balance higher expected deviations will be more expensive, resulting in a trade-o between higher reserve costs and costs of energy not served.

Suggested Citation

  • Fridrik Mar Baldursson & Julia Bellenbaum & Ewa Lazarczyk & Lenja Niesen & Christoph Weber, 2017. "Welfare optimal reliability and reserve provision in electricity markets with increasing shares of renewable energy sources," EWL Working Papers 1703, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised May 2017.
  • Handle: RePEc:dui:wpaper:1703
    as

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    More about this item

    Keywords

    Renewable Energy Sources; Electricity Reserves; Reliability; Electricity Market;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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