An Electricity Market Model with Intermittent Power

A competitive electricity market model is used to analyze the effects of replacing conventional base load power with an intermittent power supply. The model is a conceptual one and uses linear demand curves with a triangular probability distribution. In a base reference case, there are two types of providers of electricity, base load providers and peak load providers, each with a constant marginal cost. Prices are determined by the highest marginal cost of the active providers or by what the market can bear. The production capacity of each type of provider is determined by rents being equal to fixed costs. This reference case is compared to a case where base load providers have been replaced by intermittent solar and wind energy, with peak load providers still active. Despite lower costs, intermittent power is likely to result in higher and more volatile prices of electricity. Lower electricity prices could result if conventional baseload power is sufficiently expensive. The implications of changes in the availability of intermittent power are also analyzed.