The impact of distributed solar on electricity prices Public - - PowerPoint PPT Presentation

The impact of distributed solar on electricity prices

Public Seminar: How are renewable technologies impacting the price of electricity? 27th June 2013

Dylan McConnell

Solar in Australia

[Source: CEC 2013]

Economic dispatch - how electricity markets work

• Generators bid (offer) capacity

into a wholesale market, for all the trading intervals

• Generators offers are effected by

a range of factors

• Generators typically offer

quantity in and around the marginal cost of production

• The centralized market operator

dispatches electricity from lowest to highest price offer (i.e. in merit

• rder), until enough electricity is

dispatched to meet demand.

[Source: Pöyry 2010]

The principle of the merit order effect

[Source: Agora Energiewende2013]

Increasing supply in a market puts downwards pressure on price

• Introduction of new low marginal cost generation capacity shifts the supply

curve

• The same dispatch target (demand) will result in a lower spot price

International experience: Germany

The Merit Order Effect is a significant phenomena in Germany

[Source: http://transparency.eex.com/]

International experience: Germany

• Observed merit order effect: EEX 2008

[Source: http://transparency.eex.com/]

International experience: Germany

• Observed merit order effect: EEX 2012

[Source: http://transparency.eex.com/]

Modelling the Merit Order Effect

• Retrospective approach
• Modelled historic solar generation, based on satellite data
• Modified the historic demand, according to the solar generation
• Used the modified demand to re-simulate electricity prices, using the

historic generator offer data

• Assumed bidding behavior was unchanged
• Initially did this with a simplified model, for up to 5GW of solar

Results: Summer 2010

• Solar generation depresses electricity prices, particularly in summer peaks.

Modelling the Merit Order Effect

• Improved solar model:
• Modelling a diverse range of locations and system orientations
• Different distributions of solar
• Improved market model
• 5 region market model
• Incorporates some of the constraints that effect the real market
• Modelled scenarios up to 10GW

Results

Results

Results

Results

Results

Results

• 10000
• 8000
• 6000
• 4000
• 2000

Hydro Brown Coal Black Coal Gas Change in Output (GWh/annum compared with Baseline 2 GW 4 GW 6 GW 8 GW 10 GW

• 10.00%
• 8.00%
• 6.00%
• 4.00%
• 2.00%

0.00% Hydro Brown Coal Black Coal Gas Change in Output (%) 2 GW 4 GW 6 GW 8 GW 10 GW

Results

Results

Results

Results

2009 2010 2011 Market turnover 9.6 7.4 6

• Prev. analysis

Value $1,073.00 $520.00

• Percent

11.18% 7.03%

• Cur. analysis

Value $1,025.98 $497.19 $363.37 Percent 10.69% 6.72% 6.06%

Implications

• Relationship between the spot market and retail price is not straight

forward

• Bilateral contracts and vertical integration impact the flow through to the retail

price

• Degree of competition also effects the pass through
• Oligopolistic behavior may erode full pass through
• There are legitimate costs associated with hedging and risk management

that may increase as a result of increase solar

Longer term implications

• Diminishing merit effect over time
• There is limit to how much the wholesale prices can reduce.
• Supply/demand balance may re-correct, and the capacity overhang

reduce:

• For example, a large generator may mothball
• However, given that approximately another 8GW of wind and 1-5 GW of solar are

expected to be installed by 2020, and current demand trends, it may be some time before it does fully rebalance.

• What happen to the market in the longer term, with high penetrations of

renewables?

Summary

• Distributed solar has a moderating effect on wholesale prices
• These wholesale reductions may be passed through, at least in part
• The reduction may go along way to off-setting the cost of support

schemes

• Perhaps even more than off set?
• A wealth transfer occurs from existing generators, to solar system
• wners.