Market-wide impact of renewables on electricity prices in Australia

Ricardo Gonçalves and Flavio Menezes

No 640, Discussion Papers Series from University of Queensland, School of Economics

Abstract: This paper estimates the market-wide impact of renewables on Australia's National Electricity Market (NEM) wholesale prices from 2009 to 2020. The goal is to understand the medium-run impact of renewable generation, as opposed to the short-run impact of weather-driven changes in renewable output. The focus is, therefore, on the relationship between renewable generation (and its growth) and wholesale prices over a long period of time. In particular, we exploit the half-hourly nature of wholesale price setting in the NEM to uncover the impact of solar and wind daily production on the distribution of prices during the day. In contrast to the literature that focuses on the short-run impact of renewables, our results suggest that the daily solar production has a positive, although not always signi cant, impact on wholesale prices throughout the day during an early development stage of solar generation. The results for wind are more in line with the existing literature: the daily production of wind has a small, negative impact on wholesale prices for most of the day. These results are consistent with optimization studies that show that the least-cost generation mix favours wind generation over solar. The reason for this is that the production of solar is highly self-correlated, since it is available during daylight hours, whereas wind generation exhibits less correlation, and therefore is subject to more geographical smoothing.

Keywords: renewables; energy-only markets; prices. (search for similar items in EconPapers)
JEL-codes: D4 L9 (search for similar items in EconPapers)
Date: 2021-03-26
New Economics Papers: this item is included in nep-ene and nep-reg
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https://economics.uq.edu.au/files/39726/640.pdf (application/pdf)

Related works:
Journal Article: Market‐wide impact of renewables on electricity prices in Australia (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:640

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