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High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry

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  • Newbery, David M.

Abstract

Ambitious plans to decarbonize electricity will require high levels of variable renewable electricity (VRE). At high VRE penetration, the surplus that cannot be exported must be curtailed (spilled). The last MW of wind capacity will be curtailed 3＋times more hours than the average, but even in efficiently designed markets, price signals for VRE investment are given by average, not marginal, curtailment, creating a “tragedy of the commons” that requires a corrective charge to restore efficiency. The paper sets out an analytical model calibrated to Ireland in 2026, showing the source of this distortion and estimates of its magnitude.

Suggested Citation

  • Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323005091
    DOI: 10.1016/j.eneco.2023.107011
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    References listed on IDEAS

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    6. Hassanzadeh Moghimi, Farzad & Boomsma, Trine K. & Siddiqui, Afzal S., 2024. "Transmission planning in an imperfectly competitive power sector with environmental externalities," Energy Economics, Elsevier, vol. 134(C).
    7. Qiao, Qiao & Zeng, Xianhai & Lin, Boqiang, 2024. "Mitigating wind curtailment risk in China: The impact of subsidy reduction policy," Applied Energy, Elsevier, vol. 368(C).

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    More about this item

    Keywords

    Renewable electricity; Marginal wind curtailment; Integration costs; market failures; Inertia chargesbreak;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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