Curtailment of renewable generation: Economic optimality and incentives

Abstract

The loss from curtailing generation based on renewable energy sources is generally seen as an unacceptable solution by the public. The main argument is that it is a loss of green energy and an economic loss to curtail generation with near zero marginal costs. However, this view could lead to overinvestment in grid infrastructure and underinvestment in renewable energy sources. This article argues that some curtailment of fluctuating (variable) generation is optimal. We address the possible contributions to total curtailment from involuntary and voluntary curtailment. The costs of curtailment in terms of lost generation are discussed based on market price and support levels including the rationale for compensating generators for losses. The extent of actual curtailment is illustrated by examples from different global markets. In general, both the value of the curtailed energy and the amount of curtailed energy relative to total fluctuating generation is low but rising. Single generators may be affected considerably if insufficient compensation measures are in place. In the future, optimal curtailment will increase along with an increased share of fluctuating renewable generation. Extending renewable generation comparatively cheaply can be achieved by the installation of additional capacity at offshore locations until optimal curtailment levels are reached.