Impact of renewables on electricity markets – Do support schemes matter?

Rising renewable shares influence electricity markets in several ways: among others, average market prices are reduced and price volatility increases. Therefore, the “missing money problem” in energy-only electricity markets is more likely to occur in systems with high renewable shares. Nevertheless, renewables are supported in many countries due to their expected benefits. The kind of support instrument can however influence the degree to which renewables influence the market. While fixed feed-in tariffs lead to higher market impacts, more market-oriented support schemes such as market premiums, quota systems and capacity-based payments decrease the extent to which markets are affected. This paper analyzes the market impacts of different support schemes. For this purpose, a new module is added to an existing bottom-up simulation model of the electricity market. In addition, different degrees of flexibility in the electricity system are considered. A case study for Germany is used to derive policy recommendations regarding the choice of support scheme.

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