The Effect of Intermittent Renewables on the Electricity Price Variance

21 Pages Posted: 28 Feb 2014 Last revised: 11 Mar 2016

See all articles by David Wozabal

David Wozabal

Technische Universität München (TUM) - TUM School of Management

Christoph Graf

Stanford University - Department of Economics

David Hirschmann

University of Vienna - Faculty of Business, Economics, and Statistics

Date Written: September 16, 2014

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 have wide-ranging implications for policy makers coordinating subsidy schemes for renewables, flexible production capacities, and electricity storages.

Keywords: Electricity Spot Markets, Photovoltaics, Wind Power, EPEX, Merit Order

JEL Classification: L11, L51, L94, H23, O13, Q42

Suggested Citation

Wozabal, David and Graf, Christoph and Hirschmann, David, The Effect of Intermittent Renewables on the Electricity Price Variance (September 16, 2014). Available at SSRN: https://ssrn.com/abstract=2402233 or http://dx.doi.org/10.2139/ssrn.2402233

David Wozabal (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

München
Germany

Christoph Graf

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

David Hirschmann

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
183
Abstract Views
1,227
Rank
297,655
PlumX Metrics