Decreasing market value of variable renewables can be avoided by policy action
Artikel i vetenskaplig tidskrift, 2021

Although recent studies have shown that electricity systems with shares of wind and solar above 80% can be affordable, economists have raised concerns about market integration. Correlated generation from variable renewable sources depresses market prices, which can cause wind and solar to cannibalise their own revenues and prevent them from covering their costs from the market. This cannibalisation appears to set limits on the integration of wind and solar, and thus to contradict studies that show that high shares are cost effective. Here we show from theory and with simulation examples how market incentives interact with prices, revenue and costs for renewable electricity systems. The decline in average revenue seen in some recent literature is due to an implicit policy assumption that technologies are forced into the system, whether it be with subsidies or quotas. This decline is mathematically guaranteed regardless of whether the subsidised technology is variable or not. If instead the driving policy is a carbon dioxide cap or tax, wind and solar shares can rise without cannibalising their own market revenue, even at penetrations of wind and solar above 80%. The strong dependence of market value on the policy regime means that market value needs to be used with caution as a measure of market integration. Declining market value is not necessarily a sign of integration problems, but rather a result of policy choices.

Renewable energy policy

Feed-in premium

CO tax 2

Market value of variable renewables

Large-scale integration of renewable power generation

Merit order effect

Författare

T. Brown

Karlsruher Institut für Technologie (KIT)

Technische Universität Berlin

Lina Reichenberg

Chalmers, Rymd-, geo- och miljövetenskap, Fysisk resursteori, Fysisk resursteori 2

Aalto-Yliopisto

Energy Economics

0140-9883 (ISSN) 1873-6181 (eISSN)

Vol. 100 105354

Ämneskategorier

Transportteknik och logistik

Nationalekonomi

Energisystem

DOI

10.1016/j.eneco.2021.105354

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Senast uppdaterat

2021-06-24