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

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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Keywords: Dynamization, Real-time pricing, Renewable energy, Energy policy, Energy market model

DOI: 10.5547/01956574.43.1.lgok

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Published in Volume 43, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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