The influence of renewable energy generation on electricity price fluctuations, a case study of The Netherlands

Master thesis (2023)

Authors

V.B. van As Technology, Policy and Management

Contributors

E. Schröder Economics of Technology and Innovation - TPM (supervisor 1)
Z. Lukszo Energy and Industry (supervisor 2)
Faculty
Technology, Policy and Management
Copyright: © 2023 Vincent van As
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Published Date

01-12-2023

Language

English

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Faculty

Technology, Policy and Management

Abstract

The research conducts an analysis of the Dutch day-ahead electricity market prices spanning from 2015 to 2022, examining the relationship between increasing RE penetration and day-ahead electricity price fluctuations. The electricity price fluctuations over this time period are reviewed for patterns and recalculated for inflation corrections that contribute to a surge in electricity prices post-August 2021.

This price volatility is further researched by three energy market phenomena. A part of these price fluctuations can be explained by the presence of the Duck Curve phenomenon in the Dutch market, highlighting challenges associated with limited RE production time and energy demand. The Duck Curve, which illustrates the net load over a 24-hour period, reveals a decrease in fossil energy production during daylight hours and a peak in production during the night. When compared to California, this Dutch Duck Curve is more stable with the incorporation of wind energy, signifying a more reliable and consistent energy supply throughout the day.

Moreover, the study delves into another energy market phenomenon called the merit order effect, where the increased penetration of RE with low marginal cost leads to declining day-ahead electricity prices. The phenomenon is researched through the implementation of an OLS regression analysis. By plotting the results in individual months and years the merit order effect is visualized. The results are showcasing increased volatility, particularly in the latter part of the analyzed period (2020-2022). Fluctuations resembling a Duck Curve are observed, emphasizing the impact of RE implementation on price decline during periods of abundant RE supply.

Additionally, the cannibalization effect phenomenon is addressed where the growing penetration of RE undermines their own economic value. The Unit Revenue and Value Factor are calculated to aid the analysis. Followed up by the Prais-Winsten method to quantify this cannibalization effect. The results are revealing negative correlations between solar and wind shares and Unit Revenue and electricity prices. Thus, as RE penetration increases, electricity prices decrease, underscoring the cannibalization effect's influence on price fluctuations.

In conclusion, this study offers insights into the dynamic transformation of the Dutch electricity market. The identification of key phenomena such as the Duck Curve, the merit order effect, and the cannibalization effect provides empirical evidence of the market's evolution. These findings underscore the critical need for strategic management, targeted interventions, and innovative solutions. It is imperative to navigate these changes effectively to facilitate the ongoing expansion of renewable energy technologies while upholding the stability and competitiveness of the electricity market.