Market Designs, Actor Decisions and Market Values: Assessment of Remuneration Mechanisms for Future Electricity System Scenarios

For reasons of climate protection requirements, future energy systems will have to comprise very high shares of variable Renewable Energy Sources (vRES). Yet, it is still unclear whether the necessary investments into vRES will be able to sufficiently recover their costs - or whether well designed financial support instruments will be required for de-risking according decisions. This work presents a case study for Germany in order to assess future market-based cost recovery of vRES and the effects of different support schemes. Market performance indicators are applied to compare results of agent-based electricity market simulations of a scenario for different cases. The results regarding market-based cost recovery reveal a wide spectrum. We find cases where market-based cost recovery rates are not sufficient with an average of 70% for photovoltaic systems and nearly 90% for offshore wind. In other cases, recovery rates exceed the costs by far with more than 200% for onshore wind. These results disclose substantial sensitivities towards hydrogen prices as well as the endogeneitiy of flexibility representation. The analyzed support schemes contribute to full cost recovery in all cases investigated, thereby de-risking investments. As regards differences, we find most notably two-way Contracts for Differences (CfD) to increase renewable curtailment compared to one-way CfDs. Furthermore, our results reveal that instruments that do not distort dispatch lead to systematically higher wind offshore curtailments and, therefore, increase prices as well as market-based cost recovery rates.