The Market Value of Variable Renewables

38 Pages Posted: 17 Jul 2012

See all articles by Lion Hirth

Lion Hirth

Neon Neue Energieökonomik GmbH; Hertie School of Governance

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Date Written: July 16, 2012

Abstract

The inherent variability of wind speeds affects the price the wind power generators receive when selling their output on the market (market value). During windy times the additional supply of electricity at zero marginal costs shifts the supply curve (merit-order curve) to the right and thereby reduces the equilibrium price. Because the shift is larger at larger amounts of installed wind power, the relative price of wind power falls with higher penetration. The same applies to other variable renewables such as solar power. This study aims at developing a better understanding how the market value of renewables changes at increasing penetration rates. Quantitative evidence is derived from a review of published studies, regression analysis of market data, and a calibrated model of the European electricity market. The price of wind power is estimated to fall from 110 percent of the average electricity price to 50-75 percent as wind penetration increases from zero to 30 percent of total consumption. For solar power, similar low values levels are reached at market shares as low as 15 percent. Hence competitiveness for large-scale renewables deployment will be more difficult to accomplish than often believed.

Suggested Citation

Hirth, Lion, The Market Value of Variable Renewables (July 16, 2012). USAEE Working Paper No. 2110237, Available at SSRN: https://ssrn.com/abstract=2110237 or http://dx.doi.org/10.2139/ssrn.2110237

Lion Hirth (Contact Author)

Neon Neue Energieökonomik GmbH ( email )

Karl-Marx-Platz 12
12043
Berlin, 12043
Germany

HOME PAGE: http://www.neon-energie.de

Hertie School of Governance ( email )

Friedrichstraße 180
Berlin, 10117
Germany

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