Renewable generation capacity and wholesale electricity price variance
|Title:||Renewable generation capacity and wholesale electricity price variance|
|Publication Date:||September 2019|
|Published In:||The Energy Journal|
The share of electric power generated from renewable energy sources such as wind and solar must increase dramatically in the coming decades if greenhouse gas emissions are to be reduced to sustainable levels. An under-researched implication of such a transition in competitive wholesale electricity markets is that greater wind and solar generation capacity directly affects wholesale price variability. In theory, two counter-vailing forces should be at work. First, greater wind and solar generation capacity should reduce short-run variance in the wholesale electricity price due to a stochastic merit-order effect. However, increasing the generation capacity of these technologies may increase price variance due to an intermittency effect. Using an instrumental variables identification strategy to control for endogeneity, we find evidence that greater combined wind and solar generation capacity is associated with an increase in the quarterly variance of wholesale electricity prices. That is, the intermittency effect dominates the stochastic merit-order effect.
|Ivan Allen College Contributors:|
Johnson, E.P., & Oliver, M.E. (2019). Renewable generation capacity and wholesale electricity price variance. The Energy Journal 40(5): 143-168.