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Impact of dynamic pricing on investment in renewables

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  • Correia-da-Silva, João
  • Soares, Isabel
  • Fernández, Raquel

Abstract

We consider a theoretical model in which non-regulated producers may use renewable and non-renewable sources to produce electricity. Renewable sources require ex ante investment and generate uncertain output with no operating costs. Non-renewable sources do not require investment (existing capacity suffices), are dispatchable, and have linear operating costs. Producers may: use only non-renewables; use renewables and dispatch non-renewables when weather is adverse for renewables; use only renewables. Dynamic pricing has no effect on the introduction of renewables in the production mix, but promotes elimination of non-renewables. Dynamic pricing increases investment in renewables if, under static pricing, producers mix both sources; and reduces investment if, under static pricing, producers only use renewables. In both cases, dynamic pricing improves welfare as consumers and producers become better off.

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  • Correia-da-Silva, João & Soares, Isabel & Fernández, Raquel, 2020. "Impact of dynamic pricing on investment in renewables," Energy, Elsevier, vol. 202(C).
    • Handle: RePEc:eee:energy:v:202:y:2020:i:c:s0360544220308021
    DOI: 10.1016/j.energy.2020.117695
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