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The Impact of Solar Penetration on Solar and Gas Market Value: an application to the Italian Power Market

Stefano Clo () and Gaetano D’Adamo
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Gaetano D’Adamo: University of Valencia (Spain)

Authors registered in the RePEc Author Service: Gaetano D'Adamo ()

No 1405, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: We assess the impact of solar penetration in the Italian wholesale electricity market on the market value of solar with respect to gas sources, measured as the ratio between the relative price they respectively earn and the average daily electricity price (value factor). We find that, on average, an increase of solar generation has a negative impact on the price earned by solar producers, thus causing a marginal departure from the grid parity condition. The relation between solar production and its market value is not constant over the years, while it depends on the degree of solar penetration. It is positive for very low levels of solar production while, as production increases, its marginal impact on the solar market value decreases and eventually becomes negative. An opposite relation is found when looking at the Gas market value. As solar displaces gas mainly during the peak-price hours, an initial solar penetration reduces the gas market value. However, as the solar share further increases, gas producers adapt their biding strategies. They switch production from the peak to the off-peak hours, where they exploit their temporary market power to increase the off-peak price. As a result, the relative price earned by gas producers is higher than the average daily price, increasing their market value with respect to renewable sources.

Keywords: Renewable sources; grid parity; solar; gas; Italian power market; electricity price; value factor (search for similar items in EconPapers)
JEL-codes: C22 D40 Q41 Q42 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-ene and nep-eur
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