The Cannibalization Effect of Wind and Solar in the California Wholesale Electricity Market Javier López Prol*ˆ, Karl W. Steiningerˆ, David Zilberman’ *DK Climate Change ˆWegener Center for Climate and Global Change, University of Graz, Austria ’Agricultural and Resource Economics, University of California Berkeley, USA September 2017 1 / 22
Outline ◮ The rise of variable renewables ◮ The merit order and the cannibalization effect ◮ Absolute and relative cannibalization effect ◮ Conclusions ◮ Further research: demand and supply side cannibalization effect 2 / 22
The rise of variable renewables in California source solar_sh_fct wind_sh_fct 15 Penetration (%) 10 5 0 2013 2014 2015 2016 2017 date Figure 1: Smoothed daily solar and wind penetration 3 / 22
The merit-order effect ◮ Renewable energies pressure down electricity prices Figure 2: The merit order effect. Source: CLEW 2016 4 / 22
The cannibalization effect The higher solar/wind electricity penetration, the lower its value ◮ Absolute cannibalization: (solar) daily unit revenues ( p s d ): � 24 t =1 p t q s p s t d = � 24 t =1 q s t ◮ Relative cannibalization: value factor (VF): unit revenue ( p s d ) divided by daily avg. wholesale price ( p d ) � 24 t =1 p t q s t d = p s � 24 t =1 q s VF s d t = � 24 p d t =1 p t 24 p = price ; q = quantity ; s : solar ; t : time ( hour ); d : day 5 / 22
Unit revenue and value factor visualized VF d > 1 ⇔ p s d > p d 2013−06−30 2016−03−29 50 Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price Hourly electricity price VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 1.35 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 VF = 0.5 90 40 Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue Solar unit revenue 30 $/MWh $/MWh 60 Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price Avg. electricity price 20 30 10 Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation Normalized solar generation 0 0 00 02 04 06 08 10 12 14 16 18 20 22 00 00 02 04 06 08 10 12 14 16 18 20 22 00 hour hour Figure 3: Calculation of daily value factors from hourly data 6 / 22
Modeling the cannibalization effect ◮ Absolute: p s d = α + β 1 q s d + β 2 q w d + β 3 p g d + β 4 d d + γ ′ D d + ǫ d ◮ Relative: d / d d ) + β 3 p g VF s d = α + β 1 ( q s d / d d ) + β 2 ( q w d + γ ′ D d + ǫ d q = quantity ; d = demand ; p = price ; D = vector of time dummies s : solar ; w : wind ; g : gas 7 / 22
Absolute cannibalization: Unit Revenues solar wind 60 Unit revenues ($/MWh) 40 source solar wind 20 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 date Figure 4: Daily solar and wind unit revenues 8 / 22
Electricity prices 60 Electricity price ($/MWh) 40 20 0 2013 2014 2015 2016 2017 date Figure 5: Daily electricity prices 9 / 22
Relative cannibalization: Value Factors 1.5 1.0 VF 0.5 0.0 source solar wind −0.5 2013 2014 2015 2016 2017 factor(year) Figure 6: Wind and solar Value Factors descriptive statistics over time 10 / 22
Relative cannibalization: Value Factors solar wind 1.5 1.0 source VF solar wind 0.5 0.0 0 5 10 15 0 5 10 15 penetration Figure 7: Solar and wind cannibalization effect 11 / 22
Implications for PV competitiveness Value-adjusted PV LCOE = LCOE/VF Figure 8: PV cannibalization and competitiveness 12 / 22
Conclusions ◮ Increasing generation tends to lower the unit revenues of both solar and wind ◮ Increasing penetration rapidly undermines the value of solar ◮ Increasing penetration increases the variability of the solar value factor ◮ The value factor of wind, however, seems to be insensitive to its penetration ◮ The cannibalization effect could jeopardize PV competitiveness. Mitigation? ◮ Market structure ◮ Storage options ◮ Interconnections 13 / 22
Further research: supply vs. demand-side cannibalization How to disentangle demand-side (distributed self-consumption PV) from supply-side (centralized utility-scale) cannibalization? ◮ Estimate demand-side generation from installed capacity ◮ And then re-estimate the model as VF s d = α + β 1 [( q ss d + q sd d ) / ( d d + q sd d )]+ d )] + β 3 p g β 2 [ q w d / ( d d + q sd d + γ ′ D d + ǫ d q sd d : daily quantity solar demand-side (distributed) q ss d : daily quantity solar supply-side (centralized) 14 / 22
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