Impact of high variable renewable generation on future market prices and generator revenue

Abstract

This study assesses the potential impact of high renewable generation on the spot electricity prices, generator revenue and profits in an energy-only electricity market. In particular, it presents modelling outcomes for the Australian National Electricity Market (NEM) with a range of possible renewable penetrations in 2030. It is assumed that the current reliability standard is maintained and participants deploy short run marginal cost bidding. The study found that increasing the share of wind and PV generation would likely result in lower average spot prices and subsequently revenue and profit of generators. The revenue impact on large-scale PV was found to be very severe and could lead to insufficient revenue to cover the costs, particularly at higher renewable penetrations. Changes in market mechanisms, such as increasing the Market Price, may be required to ensure revenue sufficiency and long-term resource adequacy in an energy-only market with high renewables.