The looming revolution: How photovoltaics will change electricity markets in Europe fundamentally

The increase in PV (photovoltaic) capacities in Germany had since 2011 on some days already significant impacts on spot market prices at the German electricity exchange. The core objective of this paper is to investigate the possible effects of a further uptake of PV on the prices in electricity markets. We analyze two major effects: (i) the direct impact of PV at specific times of the year when PV shifts the supply curve of conventional electricity virtually out of the market, leading to temporarily very low market prices close to Zero; (ii) the indirect impact of PV (and wind) on the costs at which fossil capacities are offered at times when renewable energy sources are scarce. The major effects of these developments on the electricity markets will be: (i) a much higher price volatility from hour-to-hour and day-to-day; (ii) higher prices for electricity from fossil capacities and storage technologies for balancing the intermittent renewable generation; and (iii) growth of balancing markets and intensified competition at the level of decentralized balancing organizations. (c) 2013 Elsevier Ltd. All rights reserved.