Role of Variable Renewable Energy Penetration on Electricity Price and its Volatility Across Independent System Operators in the United States

TL;DR

This study analyzes how increased variable renewable energy (VRE) penetration affects electricity prices and volatility across six U.S. ISOs, revealing generally decreasing prices and volatility with higher VRE levels, following non-linear patterns.

Contribution

It provides empirical evidence on the non-linear impact of VRE penetration on electricity prices and volatility across multiple U.S. ISOs using advanced statistical methods.

Findings

VRE penetration decreases system electricity prices across all studied ISOs.

VRE penetration reduces price volatility in five out of six ISOs.

Relationships between VRE and prices/volatility are non-linear.

Abstract

The U.S. electrical grid has undergone substantial transformation with increased penetration of wind and solar -- forms of variable renewable energy (VRE). Despite the benefits of VRE for decarbonization, it has garnered some controversy for inducing unwanted effects in regional electricity markets. In this study, the role of VRE penetration is examined on the system electricity price and price volatility based on hourly, real-time, historical data from six Independent System Operators (ISOs) in the U.S. using quantile and skew t-distribution regressions. After correcting for temporal effects, we found an increase in VRE penetration is associated with decrease in system electricity price in all ISOs studied. The increase in VRE penetration is associated with decrease in temporal price volatility in five out of six ISOs studied. The relationships are non-linear. These results are consistent with the modern portfolio theory where diverse volatile assets may lead to more stable and less risky portfolios.