The Market Value of Variable Renewables

Lion Hirth ()

No 2012.15, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The income that wind and solar power receive on the market is affected by the variability of their output. At times of high availability of the primary energy source, they supply electricity at zero marginal costs, shift the supply curve (merit-order curve) to the right and thereby reduce the equilibrium price of electricity during that hour. The size of this merit-order effect depends on the amount of installed renewable capacity, the slope of the merit-order curve, and the intertemporal flexibility of the electricity system. Thus the price of wind power falls with higher penetration rates, even if the average electricity price remains constant. This work quantifies the effect of variability on the market value of renewables using a calibrated model of the European electricity market. The relative price of German wind power (value factor) is estimated to fall from 110% of the average electricity price to 50% as generation increases from zero to 30% of total consumption. For solar power, the drop is even sharper. Hence competitiveness for large-scale renewables deployment will be more difficult to accomplish than often believed.

Keywords: Wind Power; Solar Power; Electricity Market; Power Generation Economics; Renewables; Value Factor; Numerical Modelling (search for similar items in EconPapers)
JEL-codes: D24 D61 O13 Q42 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: The market value of variable renewables (2013)
Working Paper: The Market Value of Variable Renewables (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2012.15

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