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Title:The market value of variable renewables PDF Logo
Authors:Hirth, Lion
Issue Date:2012
Series/Report no.:Nota di lavoro, Fondazione Eni Enrico Mattei: Energy: Resources and Markets 15.2012
Abstract:The income that wind and solar power receive on the market is affected by the variability of their output. At times of high availability of the primary energy source, they supply electricity at zero marginal costs, shift the supply curve (merit-order curve) to the right and thereby reduce the equilibrium price of electricity during that hour. The size of this merit-order effect depends on the amount of installed renewable capacity, the slope of the merit-order curve, and the intertemporal flexibility of the electricity system. Thus the price of wind power falls with higher penetration rates, even if the average electricity price remains constant. This work quantifies the effect of variability on the market value of renewables using a calibrated model of the European electricity market. The relative price of German wind power (value factor) is estimated to fall from 110% of the average electricity price to 50% as generation increases from zero to 30% of total consumption. For solar power, the drop is even sharper. Hence competitiveness for large-scale renewables deployment will be more difficult to accomplish than often believed.
Subjects:Wind Power
Solar Power
Electricity Market
Power Generation Economics
Renewables
Value Factor
Numerical Modelling
JEL:Q42
O13
D24
D61
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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