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The Market Value of Wind and Solar Power: An Analytical Approach

18 Pages Posted: 29 Jan 2016  

Lion Hirth

neon neue energieökonomik GmbH

Alexander Radebach

Mercator Research Institute on Global Commons and Climate Change

Date Written: January 29, 2016

Abstract

Several studies have shown that the revenues of wind and solar power generators on spot markets (“market value”) decline with increasing deployment. This “value drop” is often discussed quantitatively but infrequently analytically, a gap that this paper aims to fill. We derive a formal expression of the market value as a function of the penetration rate. At low deployment, the market value is driven by the covariance over time between winds or sunshine and electricity consumption. In countries where power demand peaks at noon during summer, the value of solar power is initially high; the equivalent is true for wind power in those regions where stormy winters coincide with periods of high demand for heating. As deployment increases, however, we show that the market value declines linearly with the penetration rate in energy terms (market share). The slope of the decline is determined by the relative variance of wind or sun: the more the output is concentrated in a few hours of the year, the steeper the drop in value. It is in this sense that variability (intermittency) “causes” the value drop. A drop in market value is also a feature of a power generation technology that operates constantly, but the drop is smaller in size.

Suggested Citation

Hirth, Lion and Radebach, Alexander, The Market Value of Wind and Solar Power: An Analytical Approach (January 29, 2016). USAEE Working Paper No. 16-241. Available at SSRN: https://ssrn.com/abstract=2724826

Lion Hirth (Contact Author)

neon neue energieökonomik GmbH ( email )

Karl-Marx-Platz 12
12043
Berlin, 12043
Germany

HOME PAGE: http://www.neon-energie.de

Alexander Radebach

Mercator Research Institute on Global Commons and Climate Change ( email )

Torgauer Strasse 12-15
Berlin, 10829
Germany

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