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High Taxes on Cloudy Days: Dynamic State-Induced Price Components in Power Markets

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  • Leonard Gökea
  • Reinhard Madlener

Abstract

State-induced components constitute the major share of electricity prices for consumers and are generally charged at a fixed rate. We analyze the benefits of charging state-induced price components at time-varying rates instead, especially with regard to the integration of variable renewable energy (VRE) sources and to decarbonization. For this purpose, we apply a detailed power market model that puts particular emphasis on electricity demand and how it is sensitive to prices.For a quantitative case study, the model is parametrized to represent a German energy system with an 85% share of renewables in its power generation. We find that dynamization has a reducing effect on integration costs of VRE, ranging from 0.3 to 3.4 €/MWh. Furthermore, strong distributional effects in favor of flexible consumers can be observed.

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  • Leonard Gökea & Reinhard Madlener, 2022. "High Taxes on Cloudy Days: Dynamic State-Induced Price Components in Power Markets," The Energy Journal, , vol. 43(1), pages 191-214, January.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:1:p:191-214
    DOI: 10.5547/01956574.43.1.lgok
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    References listed on IDEAS

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    1. Severin Borenstein, 2007. "Wealth Transfers Among Large Customers from Implementing Real-Time Retail Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 131-150.
    2. Lion Hirth, 2015. "The Optimal Share of Variable Renewables: How the Variability of Wind and Solar Power affects their Welfare-optimal Deployment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
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