Renewable energy sources and the cycles in deregulated electricity markets.

Abstract

After countries began to deregulate electricity markets there have been indications that there might be cycles in generation capacity. This has been shown both in simulation models, experiments, and in empirical data. These cycles are caused by the combination of several different factors. The most influential of these factors are: long construction delays, long lifetime of installed capacity and the limited transparency in the industry with regards to future investments, capacity under construction, and the time it takes installed capacity to be retired. The introduction of renewable generation changes two of these factors, namely, the capacity under construction is significantly shorter although there is more uncertainty around the capacity under construction because of the often distributed nature of new generation. Using a simulation model, this paper addresses the effect of the influence of renewable generation on the formation of generation cycles. The results of the study show that there is an effect of renewables on shorter the cycles. The introduction of renewable generation has the potential to impact the formation of cycles; however, it does nothing to increase transparency with respect to capacity, which is planned, under-construction, or about to be retired.