 Fat Tails due to Variable Renewables and Insufficient Flexibility: Evidence from GermanyRonald Huisman, Evangelos Kyritsis and Cristian Stet The Energy Journal, 2022, vol. 43, issue 5, 231-247 Abstract: The large-scale integration of renewable energy sources requires flexibility from power markets in the sense that the latter should quickly counterbalance the renewable supply variation driven by weather conditions. Most power markets cannot (yet) provide this flexibility effectively as they suffer from inelastic demand and insufficient flexible storage capacity or flexible conventional suppliers. Research accordingly shows that the volume of renewable energy in the supply system affects the mean and volatility of power prices. We extend this view and show that the level of wind and solar energy supply affects the tails of the electricity price distributions as well and that it does so asymmetrically. The higher the supply from wind and solar energy sources, the fatter the left tail of the price distribution and the thinner the right tail. This implies that one cannot rely on symmetric price distributions for risk management and for valuation of (flexible) power assets. The evidence in this paper suggests that we have to rethink the methods of subsidizing variable renewable supply such that they take into consideration also the flexibility needs of power markets. Keywords: Intermittent renewable supply; Flexibility; Power prices; Fat tails; Asymmetric probability distribution (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:43:y:2022:i:5:p:231-247 DOI: 10.5547/01956574.43.5.rhui Access Statistics for this article More articles in The Energy Journal |
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