Increasing variable wind energy production: Who will benefit?

Abstract

The European Union (EU) Renewable Energy Directive, from 2009, has legally binding targets for the renewable energy share of final energy consumption in individual member states. Especially two targets, the decrease of greenhouse gas and the increase of VRE production, affect the VRE production investment in the EU power markets. The study involves four market players: consumers, wind, solar and conventional power producers. The calculation is done by the realistic Power Model based on Baltic, Nordic and German power market data. The Power Model consists of price following conventional power production, import/export between areas, climate normal and perfectly inelastic forecasts for consumption, wind and solar production and grid topology. The objective is to maximize social welfare when increasing variable renewable energy deployment in the power market with energy exchange to the neighboring regions. The optimized solution will be found in changes in conventional power production and trading between regions. Prices, values, and value factors of renewable energy connected to merit order and correlation effect, redistribution of emission reduction, and TSOs congestion income are evaluated. Due to the nonlinearity of the problem, a step-by-step approach is used to determine the change's consequence. This work answers the question: "Who else than wind power investors benefit from increasing variable renewable production?" The market price is naturally the main driver for increasing profitable wind power investments. The merit order effect, caused by increasing wind power production, decreases area prices. Reduced and reshaped area prices connected to the use/generation of power determine the beneficiary and can change who will benefit. Consumers generally benefit from the price reduction caused by wind energy. At the same time, producers suffer from declining revenues, and the change in price curve shape can change profitability. Significant prices, values and value factor changes are directly connected to investments and congestion in the interconnectors between spot price areas. Carbon-free wind power energy spreads in the power system and decreases conventional power production in the power system. Market price volatility will increase, and increased volatility will increase the cost of mitigating price risk in general. TSOs have a critical role on the road to climate neutral economy. TSOs’ congestion incomes should be invested in the interconnectors enabling energy trading between areas. This work shows that focusing only on the area where investment is planned is insufficient when investing significantly in wind power. The residual load includes the changes caused by renewable energy in the area, but it is not enough to look only inside each region. Current VRE power expansion plans are massive enough to change the price profiles of the whole power system. Expansion in neighboring regions might dramatically impact the other areas' price curves. The entire power system and the renewable energy policies in the neighboring countries should be acknowledged with existing energy exchange possibilities when a massive amount of VRE production is planned. In this study, the forecasts are perfectly inelastic hourly forecasts, and the study concentrates on a day-ahead market and cross-country electricity exchange. The main shortcoming of the model is the absence of flexibility in demand and VRE production, i.e. demand-side management, load shifting and peak shaving and lack of storage. Therefore, negative spot prices are not allowed. These should be included in the Power Model in future work.