The market value of variable renewables: The effect of solar wind power variability on their relative price

This paper provides a comprehensive discussion of the market value of variable renewable energy (VRE). The inherent variability of wind speeds and solar radiation affects the price that VRE generators receive on the market (market value). During windy and sunny times the additional electricity supply reduces the prices. Because the drop is larger with more installed capacity, the market value of VRE falls with higher penetration rate. This study aims to develop a better understanding on how the market value with penetration, and how policies and prices affect the market value. Quantitative evidence is derived from a review of published studies, regression analysis of market data, and the calibrated model of the European electricity market EMMA. We find the value of wind power to fall from 110% of the average power price to 50-80% as wind penetration increases from zero to 30% of total electricity consumption. For solar power, similarly low value levels are reached already at 15% penetration. Hence, competitive large-scale renewable deployment will be more difficult to accomplish than as many anticipate.

Wind value factor estimates from a literature review (a), the numerical model EMMA (b), and German historical market data (c). The value factor (wind revenue over base price) decreases with higher penetration rates.Highlights► The variability of solar and wind power affects their market value. ► The market value of variable renewables falls with higher penetration rates. ► We quantify the reduction with market data, numerical modeling, and a lit review. ► At 30% penetration, wind power is worth only 50-80% of a constant power source.