When Low Market Values are No Bad News: On the Coordination of Renewable Support and Real-Time Pricing

We analyze the interactions between different renewable support schemes and the benefits of real-time pricing (RTP) using a stylized economic model with a detailed demand-side representation calibrated to the German market. We find that there are considerable differences between a market premium on energy and capacity regarding wholesale prices, support levies and market values, which are all related to induced negative wholesale prices in case of the former. This comes along with overall higher welfare as it allows RTP consumers to increase their consumption in periods of high renewable availability. Moreover, increasing RTP shares also incurs higher welfare gains in case of a premium on energy, with the deployment-relevant group of consumers that switch from a flat-rate tariff to RTP benefiting most. Our analysis thus puts the widespread notion that higher market values are instrumental for the deployment of high shares of RES into perspective.

Keywords: D02; Q21; Q28; Q42; Q58

JEL Classification: RES support schemes, demand side response, market value, negative prices, Germany

Suggested Citation: Suggested Citation

Pahle, Michael and Schill, Wolf-Peter and Gambardella, Christian and Tietjen, Oliver, When Low Market Values are No Bad News: On the Coordination of Renewable Support and Real-Time Pricing (September 10, 2015). USAEE Working Paper No. 15-222, Available at SSRN: https://ssrn.com/abstract=2658739 or http://dx.doi.org/10.2139/ssrn.2658739