It's a Long and Windy Road: The Effect of Renewable Energy on Electricity Price Levels and Volatility in Texas

Abstract

As countries continue to expand variable renewable energy in their electricity grids, it is crucial to understand how doing so affects price levels and volatility. Systematic studies of the price effects of renewable energy are prevalent in Europe but are lacking in the U.S. We first update Woo et al.'s 2011 analysis by performing a regression using 15-minute Texas ERCOT data from 2013-2019 to determine the electricity price level effect of solar and wind generation. We then implement a regression and a GARCH model similar to DaSilva and Horta's 2019 study of the Iberian market to evaluate the effect of solar and wind power on daily electricity price volatility. We find that an additional 1-GWh of wind generation decreases electricity price levels by $1.17-1.40/MWh, in line with many European studies, and that a 1-percentage point increase in the wind penetration rate lowers price volatility by 1.580-2.959%. Our solar results for both studies are inconclusive. Our wind energy results have important implications for policymakers. They show that variable renewable energy can benefit ratepayers with lower and more stable prices when properly integrated into a region's electricity grid, and that intermittent power sources can play a significant role in electricity generation without adverse volatility effects.