Electricity market equilibria and intermittent renewables — A stochastic approach

Abstract

The electricity system moves step-by-step towards a system built on the use of intermittent renewable energy sources (RES). The implications raise a variety of questions. We provide deeper insights into the impact of uncertain wind power generation on wholesale electricity prices. In particular, we analyse long-term equilibrium prices and their volatility. We develop and apply a stochastic electricity spot market dispatch and investment model with recourse. We perform our calculations on a “green field” and apply a full cost approach. Thus, we investigate market equilibria in the electricity market. We show that the variance of electricity prices remains stable with the introduction of intermittent wind power production, but increases with the appearance of wind curtailment. As we come closer to a real world application, the price variance increases with increasing uncertainty in the market.