Abstract
A conceptual model of the electricity market is formulated. Demand can be either high or low, with given probabilities. Inflexible production units with high fixed cost supply the base load of low demand, while flexible units with lower fixed cost and rising marginal cost supply the rest. In a reference case, all production units cover exactly their fixed cost from inframarginal rents. Then a transition to renewable energy is analyzed. There is a certain probability that the renewable energy will not be available, but when it is, it supplies the previous base load. A back-up capacity to supply peak demand is assumed to be made available. The effect of availability of renewable energy on electricity price and fixed cost recovery is analyzed.
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