Exploring the Profitability and Efficiency of Variable Renewable Energy in Spot Electricity Market: Uncovering the Locational Price Disadvantages

Ruhang Xu, Zhilin Liu and Zhuangzhuang Yu
Additional contact information
Ruhang Xu: School of Economics and Management, North China Electric Power University, Changping, Beijing 102206, China
Zhilin Liu: Beijing Engineering Consulting Company, Chaoyang, Beijing 100124, China
Zhuangzhuang Yu: School of Economics and Management, North China Electric Power University, Changping, Beijing 102206, China

Energies, 2019, vol. 12, issue 14, 1-30

Abstract: While variable renewable energy (VRE) has been developed for decades, VRE market participation is developing relatively slowly, despite the potential economic efficiency it may bring. This paper tries to specify the efficiency of VRE in a deregulated pool-based electricity market. Based on standard pool-based market design, this paper built a direct current optimal power flow (DC-OPF) based simplified 2-settlement spot electricity market model conjugating electricity and ancillary service clearing. To address the outcomes of the imperfect market in the real world, this paper studied the consequences brought by agents’ learning and strategic behaviors. Simulations under different ancillary service levels and reliability cost levels are carried out. The results show that VRE may be unprofitable in the market, especially when learning and strategic behavior is considered. Learning and strategic market behavior will also hamper the role of VRE as a “better” energy source. This paper shows and proves a locational marginal price (LMP) disadvantage phenomenon, which will lead to low profitability of VRE. Three major suggestions are given based on the results.

Keywords: variable renewable energy; electricity market; profitability; integration cost; renewable energy integration (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/1996-1073/12/14/2820/pdf (application/pdf)
https://www.mdpi.com/1996-1073/12/14/2820/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:12:y:2019:i:14:p:2820-:d:250580

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().