Renewable Energy and Its Impact on Power Markets

  • David Wozabal
  • Christoph Graf
  • David Hirschmann
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 199)


The widespread introduction of renewable energy production is transforming electricity markets all around the globe. The changes are often hard to anticipate for market participants and the resulting uncertainty about future market conditions, policy regimes, technologies, and prices makes participation in these markets risky. In this article, we focus on changes induced by the growing capacities of wind power and photovoltaic electricity production. We highlight some aspects of power markets that are currently changing fundamentally due to increased capacities in these technologies. In particular, we discuss technological development, predictability and stochastic modeling of wind and solar output, policy issues pertaining to subsidies for renewable energies, and effects on the electricity prices on spot markets. We illustrate our findings using data from Germany and the Californian electricity market.


Wind Power Mean Absolute Percentage Error Electricity Market Electricity Price Solar Power 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. 1.
    Acemoglu D, Aghion P, Bursztyn L, Hemous D (2012) The environment and directed technical change. Am Econ Rev 102(1):131–166CrossRefGoogle Scholar
  2. 2.
    AG Energiebilanzen eV (2013) Bruttostromerzeugung in Deutschland von 1990 bis 2012 nach Energieträgern.
  3. 3.
    Andor M, Flinkerbusch K, Janssen M, Liebau B, Wobben M (2010) Negative Strompreise und der Vorrang Erneuerbarer Energien. Zeitschrift für Energiewirtschaft 34:91–99CrossRefGoogle Scholar
  4. 4.
    Arrow KJ (1962) The economic implications of learning by doing. The Rev Econ Stud 29(3):155–173CrossRefGoogle Scholar
  5. 5.
    Arwade S, Lackner M, Grigoriu M (2011) Probabilistic models for wind turbine and wind farm performance. J Sol Energy Eng 133(4):9. doi: 10.1115/1.4004273 CrossRefGoogle Scholar
  6. 6.
    Azmy A, Erlich I (2005) Impact of distributed generation on the stability of electrical power system. In: Power Engineering Society General Meeting, 2005. IEEE, vol 2, pp 1056–1063Google Scholar
  7. 7.
    Barlow M (2002) A diffusion model for electricity prices. Math Finance 12(4):287–298CrossRefGoogle Scholar
  8. 8.
    Bazilian M, Onyeji I, Liebreich M, MacGill I, Chase J, Shah J, Gielen D, Arent D, Landfear D, Zhengrong S (2013) Re-considering the economics of photovoltaic power. Renew Energ 53:329–338CrossRefGoogle Scholar
  9. 9.
    BMU (2012) Renewable energy sources in figures. National and International Development. Technical report German Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU)Google Scholar
  10. 10.
    BMU (2013a) Eckpunkte der EEG Novelle sowie sonstige Neuerungen für erneuerbare Energien. URL, German Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU)
  11. 11.
    BMU (2013b) Entwicklung der erneuerbaren Energien in Deutschland im Jahr 2012. Technical report German Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU)Google Scholar
  12. 12.
    Böhringer C, Rosendahl KE (2010) Green promotes the dirtiest: on the interaction between black and green quotas in energy markets. J Regul Econ 37(3):316–325CrossRefGoogle Scholar
  13. 13.
    Branker K, Pathak M, Pearce J (2011) A review of solar photovoltaic levelized cost of electricity. Renew Sustain Energ Rev 15(9):4470–4482CrossRefGoogle Scholar
  14. 14.
    Breyer C, Gerlach A (2010) Global overview on grid-parity event dynamics. In: Proceedings of the 25th EUPVSEC/ WCPEC-5. ValenciaGoogle Scholar
  15. 15.
    Butler L, Neuhoff K (2008) Comparison of feed-in tariff, quota and auction mechanisms to support wind power development. Renew Energ 33(8):1854–1867CrossRefGoogle Scholar
  16. 16.
    California Energy Commission (2013) California Electricity Statistics & Data. Scholar
  17. 17.
    Chao H (2011) Efficient pricing and investment in electricity markets with intermittent resources. Energy Pol 39(7):3945–3953CrossRefGoogle Scholar
  18. 18.
    Cutler NJ, Boerema ND, MacGill IF, Outhred HR (2011) High penetration wind generation impacts on spot prices in the Australian national electricity market. Energy Pol 39(10):5939–5949CrossRefGoogle Scholar
  19. 19.
    Dinica V (2006) Support systems for the diffusion of renewable energy technologies?an investor perspective. Energy Pol 34(4):461–480CrossRefGoogle Scholar
  20. 20.
    DSIRE (2013) Database of state incentives for renewables and efficiency.
  21. 21.
    EEG/KWK-G (2013) EEG-Umlage., informationsplattform der deutschen Übertragungsnetzbetreiber
  22. 22.
    European Commission (2009) Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (Text with EEA relevance). Official J Eur Union 562009 L 140:16–60Google Scholar
  23. 23.
    Eurostat (2013) Energy database.
  24. 24.
    Fagiani R, Barquín J, Hakvoort R (2013) Risk-based assessment of the cost-efficiency and the effectivity of renewable energy support schemes: Certificate markets versus feed-in tariffs. Energy Pol 55:648–661CrossRefGoogle Scholar
  25. 25.
    Giebel G (2011) The state-of-the-art in short-term prediction of wind power: A literature overview. Technical report, SafeWindGoogle Scholar
  26. 26.
    Graf C, Wozabal D (2013) On the efficiency of the epex day-ahead spot market. Technical report, University of ViennaGoogle Scholar
  27. 27.
    Green R, Vasilakos N (2010a) Market behaviour with large amounts of intermittent generation. Energy Pol 38(7):3211–3220CrossRefGoogle Scholar
  28. 28.
    Green R, Vasilakos N (2010b) The Long-Term Impact of Wind Power on Electricity Prices and Generating Capacity. Technical report, University of Birmingham, Department of Economics, Discussion Paper 11–09Google Scholar
  29. 29.
    Green R, Hu H, Vasilakos N (2011) Turning the wind into hydrogen: The long-run impact on electricity prices and generating capacity. Energ Pol 39(7):3992–3998CrossRefGoogle Scholar
  30. 30.
    Haas R, Panzer C, Resch G, Ragwitz M, Reece G, Held A (2011) A historical review of promotion strategies for electricity from renewable energy sources in EU countries. Renew Sustain Energ Rev 15(2):1003–1034CrossRefGoogle Scholar
  31. 31.
    Haghifam M, Omidvar M (2006) Wind farm modeling in reliability assessment of power system. In: Probabilistic Methods Applied to Power Systems, 2006. PMAPS 2006. International Conference on, pp 1–5Google Scholar
  32. 32.
    He Y, Hildmann M, Herog F, Andersson G (2012) Modeling the Merit Order Curve of the EEX Market. Accepted for publication in IEEE Transaction on Power SystemsGoogle Scholar
  33. 33.
    Hiroux C, Saguan M (2010) Large-scale wind power in european electricity markets: Time for revisiting support schemes and market designs? Energy Pol 38(7):3135–3145CrossRefGoogle Scholar
  34. 34.
    Hollands K, Huget R (1983) A probability density function for the clearness index, with applications. Sol Energ 30(3):195–209CrossRefGoogle Scholar
  35. 35.
    Holttinen H (2005) Optimal electricity market for wind power. Energ Pol 33(16):2052–2063CrossRefGoogle Scholar
  36. 36.
    Jacobsen HK, Zvingilaite E (2010) Reducing the market impact of large shares of intermittent energy in Denmark. Energ Pol 38(7):3403–3413CrossRefGoogle Scholar
  37. 37.
    Jacobson M, Archer C (2012) Saturation wind power potential and its implications for wind energy. Proceedings of the National Academy of Sciences of the United States of America 109(39):15,679–15,684Google Scholar
  38. 38.
    Jin T, Tian Z (2010) Uncertainty analysis for wind energy production with dynamic power curves. In: 2010 IEEE 11th International Conference on probabilistic methods applied to power systems (PMAPS), pp 745–750Google Scholar
  39. 39.
    Jónsson T, Pinson P, Madsen H (2010) On the market impact of wind energy forecasts. Energ Econ 32:313–320CrossRefGoogle Scholar
  40. 40.
    Karki R, Hu P, Billinton R (2006) A simplified wind power generation model for reliability evaluation. IEEE Trans Energ Convers 21(2):533–540CrossRefGoogle Scholar
  41. 41.
    Keppley JM (2012) A Comparative Analysis of California and German Renewable Energy Policy: Actors and Outcomes. The Josef Korbel J AdvInternational Stud 4:1–26Google Scholar
  42. 42.
    Ketterer JC (2012) The impact of wind power generation on the electricity price in Germany. Ifo Working Paper Series Ifo Working Paper No. 143, Ifo Institute for Economic Research at the University of MunichGoogle Scholar
  43. 43.
    Klessmann C, Nabe C, Burges K (2008) Pros and cons of exposing renewables to electricity market risks—A comparison of the market integration approaches in Germany, Spain, and the UK. Energ Pol 36(10):3646–3661CrossRefGoogle Scholar
  44. 44.
    Klessmann C, Rathmann M, de Jager D, Gazzo A, Resch G, Busch S, Ragwitz M (2013) Policy options for reducing the costs of reaching the european renewables target. Renew Energ 57:390–403CrossRefGoogle Scholar
  45. 45.
    MacKay D (2009) Sustainable energy: without the hot air. UIT Cambridge Limited, CambridgeGoogle Scholar
  46. 46.
    Marvel K, Kravitz B, Caldeira K (2013) Geophysical limits to global wind power. Nat Clim Change 3(2):118–121CrossRefGoogle Scholar
  47. 47.
    Menanteau P, Finon D, Lamy ML (2003) Prices versus quantities: choosing policies for promoting the development of renewable energy. Energ Pol 31(8):799–812CrossRefGoogle Scholar
  48. 48.
    Mennel T (2012) Das Erneuerbare-Energien-Gesetz – Erfolgsgeschichte oder Kostenfalle? Wirtschaftsdienst 92(1):17–22CrossRefGoogle Scholar
  49. 49.
    Milstein I, Tishler A (2011) Intermittently renewable energy, optimal capacity mix and prices in a deregulated electricity market. Energ Pol 39(7):3922–3927CrossRefGoogle Scholar
  50. 50.
    Mitchell C, Bauknecht D, Connor P (2006) Effectiveness through risk reduction: a comparison of the renewable obligation in England and Wales and the feed-in system in Germany. Energ Pol 34(3):297–305CrossRefGoogle Scholar
  51. 51.
    Munksgaard J, Morthorst PE (2008) Wind power in the Danish liberalised power market—Policy measures, price impact and investor incentives. Energ Pol 36(10):3940–3947CrossRefGoogle Scholar
  52. 52.
    Nicholson E, Rogers J, Porter K (2010) The Relationship between Wind Generation and Balancing-Energy Market Prices in ERCOT: 2007–2009. Technical report National Renewable Energy Laboratory (NREL)Google Scholar
  53. 53.
    Nicolosi M (2012) The Economics of Renewable Electricity Market Integration. An Empirical and Model-Based Analysis of Regulatory Frameworks and their Impacts on the Power Market. Ph.D thesis, University of CologneGoogle Scholar
  54. 54.
    Philibert C (2011) Interactions of policies for renewable energy and climate. IEA Energy Papers 2011/6, OECD PublishingGoogle Scholar
  55. 55.
    Pigou AC (1932) The Economics of welfare, 4th edn. Macmillan, LondonGoogle Scholar
  56. 56.
    Pineau PO, Rasata H, Zaccour G (2011) Impact of some parameters on investments in oligopolistic electricity markets. Eur J Oper Res 213(1):180–195CrossRefGoogle Scholar
  57. 57.
    Pirrong C, Jermakyan M (2008) The price of power: The valuation of power and weather derivatives. J Bank Finance 32(12):2520–2529CrossRefGoogle Scholar
  58. 58.
    Ragwitz M, Winkler J, Klessmann C, Gephart M, Resch G (2012) Recent developments of feed-in systems in the EU – A research paper for the International Feed-In Cooperation. Technical report German Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU)Google Scholar
  59. 59.
    Redl C, Haas R, Huber C, Böhm B (2009) Price formation in electricity forward markets and the relevance of systematic forecast errors. Energ Econ 31(3):356–364CrossRefGoogle Scholar
  60. 60.
    REN21 (2012) Renewables 2012: Global status reportGoogle Scholar
  61. 61.
    res-legal (2013) Renewable energy policy database and support.
  62. 62.
    Ringel M (2006) Fostering the use of renewable energies in the European Union: the race between feed-in tariffs and green certificates. Renew Energ 31(1):1–17CrossRefGoogle Scholar
  63. 63.
    Schleicher S, Tappeser R (2012) How renewables will change electricity markets in the next five years. Energ Pol 48:64–75CrossRefGoogle Scholar
  64. 64.
    Sensfuß F, Ragwitz M, Genoese M (2008) The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany. Energ Pol 36(8):3086–3094CrossRefGoogle Scholar
  65. 65.
    Skantze P, Gubina A, Ilic M (2000) Bid-based stochastic model for electricity prices: the impact of fundamental drivers on market dynamics. MIT e-lab reportGoogle Scholar
  66. 66.
    Steggals W, Gross R, Heptonstall P (2011) Winds of change: How high wind penetrations will affect investment incentives in the GB electricity sector. Energ Pol 39(3):1389–1396CrossRefGoogle Scholar
  67. 67.
    Stokes LC (2013) The politics of renewable energy policies: The case of feed-in tariffs in Ontario, Canada. Energ Pol 56:490–500CrossRefGoogle Scholar
  68. 68.
    Taylor J, McSharry P (2007) Short-term load forecasting methods: An evaluation based on european data. IEEE Trans Power Syst 22(4):2213–2219CrossRefGoogle Scholar
  69. 69.
    The Economist (2013) Carbon trading: ETS, RIP? The EconomistGoogle Scholar
  70. 70.
    Tina G, Gagliano S (2008) Probability analysis of weather data for energy assessment of hybrid solar/wind power system. In: Proceedings of 4th IASME/WSEAS International Conference on Energy, Environment, Ecosystems and Sustainable Development. EEESD08. pp 217–223Google Scholar
  71. 71.
    Tinbergen J (1952) On the theory of economic policy. North Holland, Amsterdam,  Chapters 4 and  5
  72. 72.
    Traber T, Kemfert C (2011) Gone with the wind? – Electricity market prices and incentives to invest int thermal power plants under increasing wind energy supply. Energ Econ 33(2):249–256CrossRefGoogle Scholar
  73. 73.
    Troy N, Denny E, O’Malley M (2010) Base-Load Cycling on a System With Significant Wind Penetration. IEEE Trans Power Syst 25(2):1088–1097CrossRefGoogle Scholar
  74. 74.
    US Energy Information Administration (2013) Updated capital cost estimates for utility scale electricity generating plants. Technical report, EIAGoogle Scholar
  75. 75.
    Vandezande L, Meeus L, Belmans R, Saguan M, Glachant JM (2010) Well-functioning balancing markets: A prerequisite for wind power integration. Energ Pol 38(7):3146–3154CrossRefGoogle Scholar
  76. 76.
    Ventosa M, Baíllo A, Ramos A, Rivier M (2005) Electricity market modeling trends. Energy Policy 33(7):897–913CrossRefGoogle Scholar
  77. 77.
    Weber C, Woll O (2007) Merit-Order-Effekte von Erneuerbaren Energien - Zu schön um wahr zu sein?, eWL Working Paper No. 01/07Google Scholar
  78. 78.
    Weitzman ML (1974) Prices vs. quantities. The Rev Econ Stud 41(4):477–491CrossRefGoogle Scholar
  79. 79.
    Wiser R, Lantz E, Bolinger M, Hand M (2012) Recent Developments in the Levelized Cost of Energy from U.S. Wind Power Projects. Technical report, National Renewable Energy LaboratoryGoogle Scholar
  80. 80.
    Wissen R, Nicolosi M (2008) Ist der Merit-Order-Effekt der erneuerbaren Energien richtig bewertet? Energiewirtschaftliche Tagesfragen 58(1):110–115Google Scholar
  81. 81.
    Woo C, Horowitz I, Moore J, Pacheco A (2011) The impact of wind generation on the electricity spot-market price level and variance: The Texas experience. Energ Pol 39(7):3939–3944CrossRefGoogle Scholar
  82. 82.
    Woo CK, Horowitz I, Horii B, Orans R, Zarnikau J (2012) Blowing in the wind: vanishing payoffs of a tolling agreement for natural-gas-fired generation of electricity in texas. The Energ J 33(1):207–230Google Scholar
  83. 83.
    Woodman B, Mitchell C (2011) Learning from experience? The development of the renewables obligation in England and Wales 2002?2010. Energ Pol 39(7):3914–3921CrossRefGoogle Scholar
  84. 84.
    Youcef Ettoumi F, Sauvageot H, Adane AEH (2003) Statistical bivariate modelling of wind using first-order markov chain and weibull distribution. Renew Energ 28(11):1787–1802CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • David Wozabal
    • 1
  • Christoph Graf
    • 2
  • David Hirschmann
    • 2
  1. 1.Institute for Finance, Banking and InsuranceVienna University of Economics and BusinessViennaAustria
  2. 2.Institute of Business AdministrationUniversity of ViennaViennaAustria

Personalised recommendations