Title: Renewables intermittency versus power system (in)flexibility: New insights from tail-index estimates
Authors: Evangelos Kyritsis - VATT Institute for Economic Research (Finland) [presenting]
Cristian Stet - Erasmus School of Economics at the Erasmus University Rotterdam (Netherlands)
Ronald Huisman - Erasmus School of Economics at the Erasmus University Rotterdam (Netherlands)
Abstract: Power prices are well known to have a fat-tailed probability distribution function. These fat tails represent the probability of sudden high and low prices that occur as a result of sudden changes in supply, partly due to intermittent renewable power generation, and/or in demand due to inelastic short-term demand and the absence of sufficient storage capacity. In addition to the consensus view in the literature, that the level of intermittent renewable power supply has an effect on power prices and volatility, we show that the level of wind and solar supply has an effect on the fatness of the tail of empirical power price distributions. The more wind and solar supply, the fatter the tails of the left side of the distribution function and the thinner the tails on the right side. From our empirical findings on the tail asymmetry in the distribution of electricity prices, we conclude that the power system has higher need for downward than for upward power system flexibility during times with high share of intermittent renewable energy in the power system and the opposite during times with low share of intermittent renewable energy in the power system. A better understanding of the need for power system flexibility is the first step before actually adopting new measures and designing/updating the energy policy in the market.