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Pricing and Competition with 100% Variable Renewable Energy and Storage

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  • Tommi Ekholm
  • Vilma Virasjoki

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 dispatch-able 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.

Suggested Citation

  • Tommi Ekholm & Vilma Virasjoki, 2020. "Pricing and Competition with 100% Variable Renewable Energy and Storage," The Energy Journal, , vol. 41(1_suppl), pages 215-232, June.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:1_suppl:p:215-232
    DOI: 10.5547/01956574.41.SI1.tekh
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    References listed on IDEAS

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    1. Steven A. Gabriel & Antonio J. Conejo & J. David Fuller & Benjamin F. Hobbs & Carlos Ruiz, 2013. "Complementarity Modeling in Energy Markets," International Series in Operations Research and Management Science, Springer, edition 127, number 978-1-4419-6123-5, December.
    2. Child, Michael & Kemfert, Claudia & Bogdanov, Dmitrii & Breyer, Christian, 2019. "Flexible electricity generation, grid exchange and storage for the transition to a 100% renewable energy system in Europe," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 139, pages 80-101.
    3. Wolf-Peter Schill & Claudia Kemfert, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-88.
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