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The Impact of Intermittent Power Generation on the Wholesale Electricity Prices of the MIBEL Iberian Market

Abstract:
This study addresses the effect of intermittent renewable energy generation on the dynamics of electricity prices of the Iberian market (Spain and Portugal) during the period 2010-2015. The results indicate that intermittent renewable energy has a material negative effect on electricity price, consistent with the presence of a merit-order effect. Still, that effect varies with the technology employed: wind power produces a greater impact on price vis-a-vis solar photovoltaic energy. Daily wind supply and daily demand display a higher correlation than daily solar photovoltaic power and daily demand. That implies that wind supply can be used more effectively as a hedging tool for demand variation, thereby bringing about greater price impact. Notably, there is no evidence that the impact of intermittent renewable electricity penetration has been declining over time or that marginal negative returns result from additional installed capacity at this point. Finally, the findings of this study suggest that market coupling weighs (negatively) on the elasticity of price to intermittent renewable energy production. This result is consistent with the notion that further market integration improves risk sharing and efficient resource allocation.
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Keywords: Renewable electricity, Supply, Wind, Solar, Merit-order, Iberian Market

DOI: 10.5547/2160-5890.9.1.pdas


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Published in Volume 9, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.