Pricing and competition with 100% variable renewable energy and storage

Tommi Ekholm*, Vilma Virasjoki

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Electricity production is a key sector in global decarbonization efforts, and variable renewable energy (VRE) technologies are a primary way to produce carbon-free electricity. We study an electricity market where generation is 100 % VRE, while storage and elastic demand resolve temporal supply-demand imbalances. We model hourly market equilibrium to analyze price formation and imperfect, Cournot-type competition with varying levels of ownership concentration. Market power is exerted either with storage-only or with both VRE and storage. In such a system, prices are determined dynamically by demand and intertemporal storage decisions, breaking the static logic of “merit order” with dispatchable generation. The numerical results indicate that market power with storage has a relatively moderate effect on prices and market efficiency. However, market power exerted with VRE has far larger welfare impacts, resulting from curtailed generation. However, such actions could be more readily observed by a regulator via monitoring.

Original languageEnglish
Pages (from-to)215-231
Number of pages17
JournalEnergy Journal
Volume41
DOIs
Publication statusPublished - 2020
MoE publication typeA1 Journal article-refereed

Keywords

  • Electricity markets
  • Energy storage
  • Market power
  • Variable renewable energy

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