Modeling electricity markets when renewable power increases

We analyze theoretically a simple model of the electricity market where the supply of Variable Renewable Electricity (VRE) and demand are both shifting stochastically over time. The correlation between these shifts is crucial for the equilibrium price of electricity. Based on hourly equilibria we compute yearly producer surpluses, consumer utility and the value factor of VRE, under different conditions. While an increasing correlation between VRE and demand causes a decline in average price and total producer surplus, the VRE producer surplus increases, because these producers sell much when price is high. Higher VRE and peak capacities reduce the average price and the total producer surplus, but a negative correlation can counteract this, by causing high prices more frequently. In addition, the value factor of VRE does not decline monotonously, contrary to findings in previous studies.