Decreasing market value of variable renewables can be avoided by policy action

Brown, Tom; Reichenberg, Lina

doi:10.1016/j.eneco.2021.105354

Cited by 73 publications

(43 citation statements)

References 53 publications

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“…However, here we find that when wind is introduced as a result of an increasing carbon tax, the revenue received by wind generators will not drop in absolute terms but in relative terms (see Figure 6a,b). Our results here corroborate the findings by Brown and Reichenberg [39] and Jonson et al [12]. The reason why the absolute value of wind does not drop is that on a competitive market, agents will not invest in wind if the average revenues received per kWh are lower than the levelised cost of wind.…”

Section: Average Revenues Per Kwh Received By Wind-the So-called "Cannibalisation Effect"supporting

confidence: 91%

“…Moreover, we have estimated the value factor for wind (i.e., the revenues received by wind per kWh compared to the average electricity price, see [37]) during a non-equilibrium transient phase. We find that although wind expands to significant shares of the electricity system, the absolute revenues for wind per kWh do not drop (which is in line with Brown and Reichenberg [39] who performed this in an equilibrium setting). However, the relative value of wind drops.…”

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confidence: 89%

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Modelling the Transition towards a Carbon-Neutral Electricity System—Investment Decisions and Heterogeneity

2021

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To achieve the climate goals of the Paris Agreement, greenhouse gas emissions from the electricity sector must be substantially reduced. We develop an agent-based model of the electricity system with heterogeneous agents who invest in power generating capacity under uncertainty. The heterogeneity is characterised by the hurdle rates the agents employ (to manage risk) and by their expectations of the future carbon prices. We analyse the impact of the heterogeneity on the transition to a low carbon electricity system. Results show that under an increasing CO2 tax scenario, the agents start investing heavily in wind, followed by nuclear and to some extent in natural gas fired power plants both with and without carbon capture and storage as well as biogas fired power plants. However, the degree to which different technologies are used depend strongly on the carbon tax expectations and the hurdle rate employed by the agents. Comparing to the case with homogeneous agents, the introduction of heterogeneity among the agents leads to a faster CO2 reduction. We also estimate the so called “cannibalisation effect” for wind and find that the absolute value of wind does not drop in response to higher deployment levels, but the relative value does decline.

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Section: Average Revenues Per Kwh Received By Wind-the So-called "Cannibalisation Effect"supporting

confidence: 91%

supporting

confidence: 89%

Modelling the Transition towards a Carbon-Neutral Electricity System—Investment Decisions and Heterogeneity

2021

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“…For perfect and complete markets, the marginal economic value and the MV coincide [55]. In the long-term equilibrium of an unconstrained optimum, it follows that LCOS equal storage MV, i.e., storage operators generate zero profit as costs perfectly match revenue (zero-profit condition) [49]. Using the Lagrangian function and Karush-Kuhn-Tucker (KKT) conditions (Section SI.3), Section SI.4 proofs this optimality condition.…”

Section: Long-term Equilibrium Conditions For Storagementioning

confidence: 98%

“…Storage operators generate revenue by dispatching stored energy at market prices λ t . They exploit arbitrage opportunities, ideally dispatching during periods with high prices, while charging during low-price periods [49].…”

Section: Long-term Equilibrium Conditions For Storagementioning

confidence: 99%

Renewable Energy Targets and Unintended Storage Cycling: Implications for Energy Modeling

Kittel¹,

Schill²

2021

Preprint

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To decarbonize the economy, many governments have set targets for the use of renewable energy sources. These are often formulated as relative shares of electricity demand or supply. Implementing respective constraints in energy models is a surprisingly delicate issue. They may cause a modeling artifact of excessive electricity storage use. We introduce this phenomenon as 'unintended storage cycling,' which can be detected in case of simultaneous storage charging and discharging. In this paper, we provide an analytical representation of different approaches for implementing minimum renewable share constraints in models, and show how these may lead to unintended storage cycling. Using a parsimonious optimization model, we quantify related distortions of optimal dispatch and investment decisions as well as market prices, and identify important drivers of the phenomenon. Finally, we provide recommendations on how to avoid the distorting effects of unintended storage cycling in energy modeling.

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“…A growing number of studies take into account the impact of various environmental policy instruments on different aspects of deployment of renewable energy technologies, including renewable energy capacity [2,5,7,8,10,11,14,[41][42][43], the development of the renewable energy market [12,44], the contribution of renewables to energy supply [9], renewable energy generation [45], innovations in renewable energy technologies [4,46], societal cost [47,48], the price of power generated [49,50], market value of renewables [51], renewable energy investment risk and return [16,52], energy access [53], employment impact [53,54] and the development of renewable energy technologies [55]. Regarding the role of support policies in promoting renewable energy, the studies yield mixed results, depending on the analyzed period and countries, as well as the types of policy instruments and sources of renewable energy.…”

Section: Impact Of Environmental Policy Instruments On Renewable Energymentioning

confidence: 99%

The Impact of Environmental Policy Stringency on Renewable Energy Production in the Visegrad Group Countries

Godawska

Wyrobek

2021

Energies

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Various environmental policy instruments supporting the development of renewable energy are used on an increasing scale as part of the policy of mitigating climate change and more. In our paper, we examine the influence of environmental policy stringency on renewable energy production in the Czech Republic, Hungary, Poland and Slovakia for the period 1993–2012 after controlling for gross domestic product per capita growth, CO2 emissions per capita and income inequality. We use the Panel Pooled Mean Group Autoregressive Distributive Lag model to analyze the long-run and the short-run relationship between restrictiveness of environmental policy and renewable energy generation. The results reveal that, in the long run, a more stringent environmental policy has a positive impact both on the increase in the absolute volume of renewable energy production, as well as on the replacement of energy from fossil sources. Our main findings indicate that renewable energy production is positively influenced not only by the stringency of instruments aimed directly at the development of this energy sector, but also by the stringency of instruments with other environmental goals and by the overall level of restrictiveness of the environmental policy.

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Decreasing market value of variable renewables can be avoided by policy action

Cited by 73 publications

References 53 publications

Modelling the Transition towards a Carbon-Neutral Electricity System—Investment Decisions and Heterogeneity

Modelling the Transition towards a Carbon-Neutral Electricity System—Investment Decisions and Heterogeneity

Renewable Energy Targets and Unintended Storage Cycling: Implications for Energy Modeling

The Impact of Environmental Policy Stringency on Renewable Energy Production in the Visegrad Group Countries

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