The effect of intermittent renewables on the electricity price variance

Abstract

The dominating view in the literature is that renewable electricity production increases the price variance on spot markets for electricity. In this paper, we critically review this hypothesis. Using a static market model, we identify the variance of the infeed from intermittent electricity sources (IES) and the shape of the industry supply curve as two pivotal factors influencing the electricity price variance. The model predicts that the overall effect of IES infeed depends on the produced amount: while small to moderate quantities of IES tend to decrease the price variance, large quantities have the opposite effect. In the second part of the paper, we test these predictions using data from Germany, where investments in IES have been massive in the recent years. The results of this econometric analysis largely conform to the predictions from the theoretical model. Our findings suggest that subsidy schemes for IES capacities should be complemented by policy measures supporting variance absorbing technologies such as smart-grids, energy storage, or grid interconnections to ensure the build-up of sufficient capacities in time.

Economics of converting renewable power to hydrogen

“…The preceding model framework is now applied to wind energy in both Germany and Texas. PtG naturally complements wind energy, which tends to reach peak production levels at night when demand from the grid and power prices are relatively low 23,24 . In Texas, operators of wind turbines are eligible for a production tax credit (PTC), a fixed credit per kWh of produced electricity 25 .…”

A looming revolution: Implications of self-generation for the risk exposure of retailers

“…In the literature, the relationship between prices and load has been observed to be concave (e.g. Pirrong and Jermakyan, 2008;Carmona et al, 2013;Coulon et al, 2013) or concave-convex (Burger et al, 2004;He et al, 2013;Wozabal et al, 2016) and has therefore been modelled through exponential functions or polynomial functions, respectively. The relationship between day-ahead prices and residual load in the German market during the period January 2015-December 2016 and at hours 5:00, 8:00, 11:00, 14:00, 17:00 is illustrated in Fig.2 via scatter plots.…”

On the Influence of Renewable Energy Sources in Electricity Price Forecasting in the Iberian Market

“…Interestingly, the dominating view that renewable electricity production increases the price variance has been questioned in other contributions. Authors in [18] put forward a static market model which predicts that small to medium quantities of RES bring about a reduction of the electricity price variance while large quantities produce the opposite effect. In general, the impact of intermittent wind generation on hourly equilibrium prices has shown to lead to below-average prices and to a higher price variance in Great Britain [19], Denmark [20], Texas [21] or New England [22].…”