Implications of Growing Wind and Solar Penetration in Retail Electricity Markets with Gradual Demand Response

Chin Hui Hao, Presley K. Wesseh (), David Okorie and Hermas Abudu
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Chin Hui Hao: College of International Business and Trade, Xiamen Ocean Vocational College, Xiamen 361005, China
Presley K. Wesseh: School of Management, China Institute for Studies in Energy Policy, Collaborative, Innovation Center for Energy Economics and Energy Policy, Xiamen University, Xiamen 361005, China
Hermas Abudu: College of Overseas Education, Chengdu University, Chengdu 610106, China

Energies, 2023, vol. 16, issue 23, 1-15

Abstract: Time-of-use pricing in retail electricity markets implies that wholesale market scarcity becomes easily communicated to end consumers. Yet, it is not well-understood if and how the price formation process in retail electricity markets will help to reward the demand for operational flexibility due to growth in intermittent generation. To contribute to this discussion, this paper develops a partial equilibrium model of the retail electricity market calibrated to Chinese data. The paper finds that tariffs in this market may not be significantly suppressed by growth in near-zero costs renewable sources when controlling for flexibility restrictions on thermal generation assets and when a significant curtailment of variable renewable resources exists in the market. In addition, it shows that the price formation process in retail electricity markets which controls for flexibility restrictions on thermal generation while allowing for consumers to respond slowly to price changes is a feasible strategy to reward the demand for operational flexibility. Finally, the paper reveals that while integrating intermittent generation beyond levels which the available storage capacities can accommodate may result in losses to producers, benefits to consumers may offset these losses, leading to overall welfare gains.

Keywords: time-of-use pricing; demand response; operational flexibility; intermittent generation; welfare (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: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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