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

Fridrik Baldursson (), Julia Bellenbaum (), Ewa Lazarczyk (), Lenja Niesen () and Christoph Weber ()
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Christoph Weber: Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen)

EWL Working Papers from University of Duisburg-Essen, Chair for Management Science and Energy Economics

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.

Keywords: Renewable Energy Sources; Electricity Reserves; Reliability; Electricity Market (search for similar items in EconPapers)
JEL-codes: Q40 (search for similar items in EconPapers)
Pages: 24
Date: 2017-03, Revised 2017-05
New Economics Papers: this item is included in nep-ene and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:dui:wpaper:1703

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