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Market-wide impact of renewables on electricity prices in Australia

Author

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  • Ricardo Gonçalves

    (Católica Porto Business School, Universidade Católica Portuguesa)

  • Flávio Menezes

    (School of Economics, University of Queensland, Brisbane, Australia)

Abstract

This paper estimates the market-wide impact of renewables on Australia's National Electricity Market (NEM) wholesale prices from 2009 to 2020. The goal is to understand the medium-run impact of renewable generation, as opposed to the short-run impact of weather-driven changes in renewable output. The focus is, therefore, on the relationship between renewable generation (and its growth) and wholesale prices over a long period of time. In particular, we exploit the half-hourly nature of wholesale price setting in the NEM to uncover the impact of solar and wind daily production on the distribution of prices during the day. In contrast to the literature that focuses on the short-run impact of renewables, our results suggest that the daily solar production has a positive, although not always signi cant, impact on wholesale prices throughout the day during an early development stage of solar generation. The results for wind are more in line with the existing literature: the daily production of wind has a small, negative impact on wholesale prices for most of the day. These results are consistent with optimization studies that show that the least-cost generation mix favours wind generation over solar. The reason for this is that the production of solar is highly self-correlated, since it is available during daylight hours, whereas wind generation exhibits less correlation, and therefore is subject to more geographical smoothing.

Suggested Citation

  • Ricardo Gonçalves & Flávio Menezes, 2021. "Market-wide impact of renewables on electricity prices in Australia," Discussion Papers Series 640, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:640
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    File URL: https://economics.uq.edu.au/files/39726/640.pdf
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    References listed on IDEAS

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    Cited by:

    1. Paul Simshauser & Tim Nelson & Joel Gilmore, 2022. "The sunshine state: implications from mass rooftop solar PV take-up rates in Queensland," Working Papers EPRG2219, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Simshauser, P. & Newbery, D., 2023. "Non-Firm vs. Priority Access: on the Long Run Average and Marginal Cost of Renewables in Australia," Cambridge Working Papers in Economics 2363, Faculty of Economics, University of Cambridge.
    3. Gonçalves, Ricardo & Menezes, Flávio, 2022. "The price impacts of the exit of the Hazelwood coal power plant," Energy Economics, Elsevier, vol. 116(C).
    4. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    renewables; energy-only markets; prices.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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