The impact of variable renewables’ heterogeneity on their market values in the Iberian wholesale electricity market

The negative impact of increasing market shares of wind and solar power on their market values in electricity spot markets, i.e., the cannibalization effect, has been described and quantified extensively using both historical market data and energy market models. Yet, most previous work is limited to estimations on an aggregated level and does not account for heterogeneity of solar and wind power plants within one bidding zone. Applying panel data methods to a unique dataset with unit-wise revenues of variable renewable power plants in the Iberian electricity spot market in 2020 and 2021 that also includes unit characteristics, namely location, installed capacity and partially technology, I study the impact of heterogeneity within renewable power plants on their market values. As a result, this paper provides evidence that the effect of location or technology on renewables’ market values is almost as high as or even higher than the effect of the contemporary market share of renewable production. In terms of energy policy, this result underlines that integrating renewables in wholesale markets can incentivize choosing renewable projects’ technologies and locations according to price signals. For electricity market models, it provides insights into the relevance of heterogeneous production profiles when studying variable renewables’ market performances.