Impact of renewable energy on the power market

Renewable energy sources have become mainstream sources of energy as the concerns for Global Warming grow. Motivated by ambitious international objectives and strong support policies, the installed capacities of renewable energy technologies has shown a large growth in recent years. This growth has raised important questions relating to their impacts on power markets and systems. As part of State energy policies in Turkey, support for the renewable energy as a prime source has been increased. This has led a significant capacity increase in the last years, especially with wind and solar PV investments. Consequently, as in other countries, analyzing the economical impact of renewables and support schemes has become crucial. The thesis aims to show the renewables effect on wholesale electricity prices and retail costs in Turkey. The prevalent and the oldest renewable support mechanism in Turkey is feed-in-tariff (FIT) mechanism. Renewable power plants are subsidized by FIT to cover their investments costs, which are higher than conventional power plants. The incentive cost is taken from electricity retailers in Turkish market. Turkish day-ahead market (DAM) price formation method is merit-order curve which enables low marginal cost plants to produce electricity first instead of high marginal cost plants. Renewable plants with their almost zero marginal costs, enter merit-order curve from the lowest part. Thus, renewable generation replaces the conventional power plants with high marginal costs and decreases wholesale prices, which is called merit-order effect in literature. In this thesis, Turkish electricity market hourly data which belongs to 2014-2017 period is analyzed using a multiple linear regression model. The ex-post analysis explains renewables under FIT mechanism and other main variables effect on historical spot prices. FIT portfolio in Turkey consists of wind, solar, hydropower, geothermal, and biofuel renewable sources. By using regression coefficients of renewables and demand, the model calculates merit-order effect of renewables which belong to FIT portfolio. Then, the merit-order effect is compared with historical FIT costs to find net cost effect of renewables. For the examined term, analysis shows that merit-order effect is less than FIT cost. That means, renewables step-down effect on wholesale prices are less than FIT cost so increases the total retail cost in the period. The calculations show that renewables increased total retail costs by 5.3 billion TL between 2014 and 2017. The thesis calculates main cost components of retailing the power: commodity, FIT, profile and imbalance costs. To show the increasing FIT cost impact on retailers, retail costs in the investigated period are compared with national retail electricity tariff prices which determines an upper limit for retailer prices. It is found that, in 2017 the national retail tariff prices are not high enough, which caused in diminishing retail sales gross margin. Regulation of FIT and other renewable support mechanisms are also explained in the thesis. The regulation of FIT cost calculation method is applied with 2017 realized FIT cost input data such as generation of renewables, FX rates, spot prices. Recalculated monthly FIT costs are found similar to realize the FIT costs. The 2017 FIT calculation model is also used to show USD/TRY exchange rate and renewable generation technologies mix effect on the FIT costs. FIT cost dependency on FX rates makes them unpredictable and volatile. Therefore, some electricity retailers, who work with limited sales margin, make loss because of volatile FIT costs. Thus, a significant part of eligible electricity customers switched to regulated authorized retail company portfolios. Consequently, the belief in private markets is reduced. Policy makers need new actions to rebuild the trust.