A study by SOE associate professor Matthew E. Oliver and former SOE faculty member Erik Johnson has been published in the September 2019 issue of The Energy Journal, the flagship journal of the International Association for Energy Economics (IAEE). The article, titled “Renewable Generation Capacity and Wholesale Electricity Price Variance,” describes an important effect on electricity markets of the rapid deployment of intermittent electricity generation technologies like wind and solar.
Specifically, Johnson and Oliver empirically estimate the effect of increased wind and solar generation capacity on the variation in wholesale electricity prices using data from OECD countries. The study finds that increased wind and solar generation capacity has led to a statistically significant increase in the quarterly variance of wholesale electricity prices. Greater wholesale price volatility implies greater risk to electric utilities operating in competitive wholesale markets, a common feature of most deregulated markets. The additional cost of managing this risk—for example, through hedging and futures trading—is likely to be passed on to electricity consumers. The authors conclude that their results further emphasize the need for large scale electricity storage technology to complement these intermittent technologies if their full benefits are to be realized.
The article can be accessed here.