The Optimal Share of Variable Renewables. How the Variability of Wind and Solar Power Affects their Welfare-optimal Deployment
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 output variability over time, forecast errors, and the location of generators in the power grid, and evaluate the impact of these three factors on the marginal value of electricity from renewables. Then we estimate the optimal share of wind and solar power in Northwestern Europe from a calibrated numerical power market model. The optimal long-term share of wind power of total electricity consumption is estimated to be 20% at cost levels of 50 €/MWh, about three times the current market share of wind; but this estimate is subject to 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.
|Date of creation:||Oct 2013|
|Contact details of provider:|| Postal: Corso Magenta, 63 - 20123 Milan|
Web page: http://www.feem.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Severin Borenstein, 2012.
"The Private and Public Economics of Renewable Electricity Generation,"
Journal of Economic Perspectives,
American Economic Association, vol. 26(1), pages 67-92, Winter.
- Severin Borenstein, 2011. "The Private and Public Economics of Renewable Electricity Generation," NBER Working Papers 17695, National Bureau of Economic Research, Inc.
- Bazilian, Morgan & Onyeji, Ijeoma & Liebreich, Michael & MacGill, Ian & Chase, Jennifer & Shah, Jigar & Gielen, Dolf & Arent, Doug & Landfear, Doug & Zhengrong, Shi, 2013. "Re-considering the economics of photovoltaic power," Renewable Energy, Elsevier, vol. 53(C), pages 329-338.
- van der Zwaan, Bob & Rivera-Tinoco, Rodrigo & Lensink, Sander & van den Oosterkamp, Paul, 2012. "Cost reductions for offshore wind power: Exploring the balance between scaling, learning and R&D," Renewable Energy, Elsevier, vol. 41(C), pages 389-393.
- Tuohy, A. & O'Malley, M., 2011. "Pumped storage in systems with very high wind penetration," Energy Policy, Elsevier, vol. 39(4), pages 1965-1974, April.
- Brigitte Knopf & Bjørn Bakken & Samuel Carrara & Amit Kanudia & Ilkka Keppo & Tiina Koljonen & Silvana Mima & Eva Schmid & Detlef P. Van Vuuren, 2013.
"Transforming The European Energy System: Member States' Prospects Within The Eu Framework,"
Climate Change Economics (CCE),
World Scientific Publishing Co. Pte. Ltd., vol. 4(su), pages 1-26.
- Brigitte Knopf & Bjorn Bakken & Samuel Carrara & Amit Kanudia & Ilkka Keppo & Tiina Koljonen & Silvana Mima & Eva Schmid & Detlef Van Vuuren, 2013. "Transforming the European Energy System: Member States' Prospects within the EU Framework," Post-Print halshs-00936127, HAL.
- Brigitte Knopf & Bjørn Bakken & Samuel Carrara & Amit Kanudia & Ilkka Keppo & Tiina Koljonen & Silvana Mima & Eva Schmid & Detlef van Vuuren, 2014. "Transforming the European Energy System: Member States’ Prospects Within the EU Framework," Working Papers 2014.14, Fondazione Eni Enrico Mattei.
- Erin Baker & Meredith Fowlie & Derek Lemoine & Stanley S. Reynolds, 2013. "The Economics of Solar Electricity," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 387-426, June.
- Geoffrey J. Blanford, James H. Merrick, and David Young, 2014. "A Clean Energy Standard Analysis with the US-REGEN Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
- William D. Nordhaus, 2009.
"The Perils of the Learning Model For Modeling Endogenous Technological Change,"
Cowles Foundation Discussion Papers
1685, Cowles Foundation for Research in Economics, Yale University.
- William D. Nordhaus, 2009. "The Perils of the Learning Model For Modeling Endogenous Technological Change," NBER Working Papers 14638, National Bureau of Economic Research, Inc.
- Hernández-Moro, J. & Martínez-Duart, J.M., 2013. "Analytical model for solar PV and CSP electricity costs: Present LCOE values and their future evolution," Renewable and Sustainable Energy Reviews, Elsevier, vol. 20(C), pages 119-132.
- Richard Schmalensee, 2013. "The Performance of U.S. Wind and Solar Generating Units," NBER Working Papers 19509, National Bureau of Economic Research, Inc.
- Neuhoff, K. & Ehrenmann, A. & Butler, L. & Cust, J. & Hoexter, H. & Keats, K. & Kreczko,A. & Sinden, G., 2006.
"Space and Time: Wind in an Investment Planning Model,"
Cambridge Working Papers in Economics
0620, Faculty of Economics, University of Cambridge.
- Neuhoff, Karsten & Ehrenmann, Andreas & Butler, Lucy & Cust, Jim & Hoexter, Harriet & Keats, Kim & Kreczko, Adam & Sinden, Graham, 2008. "Space and time: Wind in an investment planning model," Energy Economics, Elsevier, vol. 30(4), pages 1990-2008, July.
- Paul L. Joskow, 2011.
"Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies,"
American Economic Review,
American Economic Association, vol. 101(3), pages 238-241, May.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," RSCAS Working Papers 2011/45, European University Institute.
- Paul L. Joskow, 2010. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," Working Papers 1013, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," EUI-RSCAS Working Papers 45, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Hirth, Lion, 2013.
"The market value of variable renewables,"
Elsevier, vol. 38(C), pages 218-236.
- Ueckerdt, Falko & Hirth, Lion & Luderer, Gunnar & Edenhofer, Ottmar, 2013. "System LCOE: What are the costs of variable renewables?," Energy, Elsevier, vol. 63(C), pages 61-75.
- Markus Blesl & Tom Kober & Ralf Kuder & David Bruchof, 2012. "Implications of different climate protection regimes for the EU-27 and its member states through 2050," Climate Policy, Taylor & Francis Journals, vol. 12(3), pages 301-319, May.
- Ben Hoen & Jason Brown & Thomas Jackson & Mark Thayer & Ryan Wiser & Peter Cappers, 2015. "Spatial Hedonic Analysis of the Effects of US Wind Energy Facilities on Surrounding Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 51(1), pages 22-51, July.
- Francis Bessière, 1970. "The "Investment '85" Model of Electricite de France," Management Science, INFORMS, vol. 17(4), pages 192-211, December.
- Lise, Wietze & Kruseman, Gideon, 2008. "Long-term price and environmental effects in a liberalised electricity market," Energy Economics, Elsevier, vol. 30(2), pages 230-248, March.
- Richard Green, 2005. "Electricity and Markets," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 67-87, Spring.
- Lion Hirth & Falko Ueckerdt, 2012.
"Redistribution Effects of Energy and Climate Policy: The Electricity Market,"
2012.82, Fondazione Eni Enrico Mattei.
- Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
- Martin, Brian & Diesendorf, Mark, 1983. "The economics of large-scale wind power in the UK A model of an optimally mixed CEGB electricity grid," Energy Policy, Elsevier, vol. 11(3), pages 259-266, September.
- Nagl, Stephan & Fürsch, Michaela & Jägemann, Cosima & Bettzüge, Marc Oliver, 2011. "The economic value of storage in renewable power systems - the case of thermal energy storage in concentrating solar plants," EWI Working Papers 2011-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
- 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.
- Peter O. Steiner, 1957. "Peak Loads and Efficient Pricing," The Quarterly Journal of Economics, Oxford University Press, vol. 71(4), pages 585-610.
- DeCarolis, Joseph F. & Keith, David W., 2006. "The economics of large-scale wind power in a carbon constrained world," Energy Policy, Elsevier, vol. 34(4), pages 395-410, March.
- Hendrik Bessembinder & Michael L. Lemmon, 2002. "Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets," Journal of Finance, American Finance Association, vol. 57(3), pages 1347-1382, 06.
- Andreas Schröder & Friedrich Kunz & Jan Meiss & Roman Mendelevitch & Christian von Hirschhausen, 2013. "Current and Prospective Costs of Electricity Generation until 2050," Data Documentation 68, DIW Berlin, German Institute for Economic Research.
- 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).
- Möst, Dominik & Fichtner, Wolf, 2010. "Renewable energy sources in European energy supply and interactions with emission trading," Energy Policy, Elsevier, vol. 38(6), pages 2898-2910, June.
- Lamont, Alan D., 2008. "Assessing the long-term system value of intermittent electric generation technologies," Energy Economics, Elsevier, vol. 30(3), pages 1208-1231, May.
- Nemet, Gregory F., 2006. "Beyond the learning curve: factors influencing cost reductions in photovoltaics," Energy Policy, Elsevier, vol. 34(17), pages 3218-3232, November.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2013.90. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah)
If references are entirely missing, you can add them using this form.