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The effects of renewables in space and time: A regime switching model of the Italian power price

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  • Sapio, Alessandro

Abstract

Renewable energy production can exercise a downward pressure on electricity prices by partly crowding out conventional units characterized by higher marginal costs (merit order effect). Yet, congestion induced by renewables would partly offset the merit order effect in the congested zone, unless renewables reduce the need for imports and allow the emergence of prosumers. These congestion effects of renewables are hereby jointly tested with the merit order effect by means of an endogenous regime-switching model wherein a regime corresponds to the observable status (congested/non-congested) of the grid. The model is taken to data from the Italian power exchange, observed in 2012 and 2013, with a focus on the line connecting Sicily with the South zone, a frequent bottleneck in the Italian transmission grid. The results confirm the merit order effect previously detected in the literature and highlight a negative congestion effect, i.e. renewables relieve congestion from Sicily, a systematic importer, but not from the Italian peninsula (the exporting region). This effect is mainly driven by the wind power in-feed.

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  • Sapio, Alessandro, 2015. "The effects of renewables in space and time: A regime switching model of the Italian power price," Energy Policy, Elsevier, vol. 85(C), pages 487-499.
    • Handle: RePEc:eee:enepol:v:85:y:2015:i:c:p:487-499
    DOI: 10.1016/j.enpol.2015.07.025
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    More about this item

    Keywords

    Renewables; Congestion; Regime switching model; Electricity price; Merit order effect; Italy;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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