The Optimal Share of Variable Renewables

Abstract

The variability of wind and solar power crucially affects their social value. This paper determines the welfare-optimal market share of wind and solar power under different technology, price, and policy assumptions, focussing on the impact of variability. A numerical electricity market model with high temporal resolution is used to represent variability realistically, and empirical data are used to capture crucial correlations over time and across space. Results indicate that variability significantly limits the role that wind and solar power should play in a cost-optimal energy system. The optimal share of wind power in North- Western Europe is estimated to be 7-10% in the medium term and around 25% in the long term. If wind speeds were constant, the optimal deployment rate would be up to twice as high. Solar power is too expensive to be deployed efficiently, even at very optimistic assumptions regarding cost development.

Keywords: wind power, solar power, variable renewables, cost-benefit analysis, numerical optimization

JEL Classification: C61, C63, Q42, Q48, D41