Optimal Allocation of Variable Renewable Energy Considering Contributions to Security of Supply

Electricity markets are increasingly influenced by variable renewable energy such as wind and solar power with a pronounced weather-induced variability and imperfect predictability. As a result, the evaluation of the capacity value of variable renewable energy, i.e. its contribution to security of supply, gains importance. This paper develops a new methodology to endogenously determine the capacity value in large-scale investment and dispatch models for electricity markets. The framework allows to account for balancing effects due to the spatial distribution of generation capacities and interconnectors. The practical applicability of the methodology is shown with an application for wind power in Europe. We find that wind power can substantially contribute to security of supply in a decarbonized European electricity system in 2050, with regional capacity values ranging from 1 - 40%. Analyses, which do not account for the temporal and spatial heterogeneity of the contribution of wind power to security of supply therefore lead to inefficient levels of dispatchable back-up capacity. Applying a fixed wind power capacity value of 5% results in an overestimation of firm capacity requirements in Europe by 66GW in 2050. This translates to additional firm capacity provision costs of 3.8 bn EUR per year in 2050, which represents an increase of 7%.