RES-E capacity investment under uncertain renewable energy supply and volatile electricity spot price

Abstract

Purpose

When the power generator faces uncertain and independent electricity spot price and renewable energy source supply, two different conditions need to be considered: the distributions of renewable energy source electricity and electricity spot price are independent or dependent. The purpose of this paper is to explore the capacity investment strategy under volatile electricity spot price when renewable energy penetration rate is low, taking into account these two conditions.

Design/methodology/approach

The authors design a capacity investment model under dual uncertainties and consider how to optimize the investment capacity in order to maximize profit under two different conditions.

Findings

The authors find that when renewable energy supply fluctuation is unrelated to spot electricity price fluctuation, the renewable energy power profitability is determined by the average cost of spot electricity price and equivalent cost. When renewable energy supply fluctuation is related to spot electricity price fluctuation, the renewable energy power profitability is determined by the market value and the construction and maintenance cost.

Practical implications

Faced with the conflict of the renewable energy supply, the authors need to understand how to plan the generation capacity with intermittent renewable sources. The result helps renewable energy become competitive in the electricity market under loose regulations.

Originality/value

The authors compare two capacity investment strategies that the renewable energy supply fluctuation is related and unrelated to spot electricity price.

Citation

Kong, L., Li, Z., Liang, L. and Xie, J. (2017), "RES-E capacity investment under uncertain renewable energy supply and volatile electricity spot price", Industrial Management & Data Systems, Vol. 117 No. 6, pp. 1145-1165. https://doi.org/10.1108/IMDS-06-2016-0213