The Market Value of Wind and Solar Energy: Strategies at Archive Cost-Competitiveness of Renewable Energy

ETA Seminar on October 3, 2017
Speaker: Dr. Lion Hirth, Professor, Hertie School of Governance

With record-breaking tender results dominating the renewable energy news, cost competitiveness seems to be a no-brainer. However, the economics of wind and solar energy has two sides: cost and value. We study the marginal economic value or “market value” (USD/MWh) of renewable energy, finding a drop in value of concerning size as these technologies penetrate the market. I will present model-based results for Europe, a quantitative meta-analysis of published studies, and econometric evidence. Different measures can help mitigate the value drop, including electricity storage, flexible conventional plants, expansion of transmission, and demand response. In a recent study, we have assessed another option: a change in the design of wind power plants. “Advanced” wind turbines that are higher and have a larger rotor compared to rated capacity (lower specific rating) generate electricity more constantly than “classical” turbines. Recent years have witnessed a significant shift towards such advanced technology. Our model-based analysis for Northwestern Europe shows that such design can substantially increase the spot market value of generated electricity. At a 30% penetration rate, the value of one MWh of electricity generated from a fleet of advanced turbines is estimated to be 15% higher than the value of one MWh from classical turbines. The additional value is large, whether compared to wind generation costs, to the value drop, or to the effect of alternative measures such as electricity storage. Extensive sensitivity tests indicate that this finding is remarkably robust.