Impact of Renewable Generation in the Spanish

Electricity Market
Juan-Manuel Roldán-Fernández, Manuel Burgos-Payán, Ángel-Luis Trigo-García,
Juan-Luis Díaz-García and Jesús-Manuel Riquelme-Santos
Dept. of Electrical Engineering
University of Seville
Sevilla, Spain
Email: {jmroldan, mburgos, trigonal, jsantos}@us.es and juadiagar@hotmail.es

Abstract—The influence of the integration of various amount
of generation form renewable sources in the Spanish/Iberian
Electricity Market is addressed in this work. To reach that goal
the hourly information data published by the Spanish/Iberian
Market Operator (OMEL/OMIE) for the five-year period 2008-
2012 was used. A method similar to the procedure used by the
Market Operator has been used to analyze the effect of the
integration of generation based on renewable energy in the
wholesale market. Previously, the effect of the complex bids on
the cost of the traded energy is examined. For the considered
period, the reduction of the cost of the traded energy in the
market due the integration of renewable producers was 8%
greater than the premium paid by the consumers, while the
complex bids are responsible of almost a half of the actual cost of
the traded energy.
Keywords—Cost-benefit analysis, Renewable
Wholesale electric energy market.
I. INTRODUCTION
Production of electricity from renewable energy present
environmental benefits and offer significant socioeconomic
advantages, such as the improvement in the diversification of
energy supply, security of supply in the long term, the creation
of a domestic industry, enhancement of opportunities for
regional and rural development, and the creation of
employment, among other. However, as the support of the
renewable generators is paid by electricity consumers via their
production from renewable technologies (including also the
production from improved-efficiency systems, such as
combined heat and power plants - CHP) in Spain. In this work,
a representative week of the each year was used to estimate the
yearly results of the market. All these works concluded that the
cost of supporting renewable production is roughly balanced
by the downward impact on wholesale market prices.
An approach similar to the used in [4], but deeper, has been
adopted. The work empirically reviews the balance between
the reduction in the clearing prices for all the agents in the
wholesale market (generators and consumers) and the cost
increase for the consumers, as they have to the pay the
regulated premium to the renewable producers. A methodology
similar to the procedure used by the Market Operator has been
used to analyze the effect of the integration in the wholesale
energy,
market of different amounts of renewable generation. First, the
effect of the complex bids on the final clearing point (energy
and price) is surveyed, evaluating its impact on the cost of the
traded energy. Then, the effect of increasing or decreasing the
hourly production based on renewable energy integrated in the
wholesale market is analyzed, evaluating their effect on the
clearing wholesale market as well as the premium paid by the
consumers.
200
Demand
De
Dem
D emand
em an
an
nd
d
bid
bid
ds
bids
160
Price (€/MWh)

bills, it is sometimes stated that renewable energy, due to its 120

subsidies (premiums) and time-variable characteristics, is
Complex matching
expensive. However, the influence that a growing share of 80 Simple
renewable generation on the electricity mix has on the Offer
Of
Off
O ff
ff
ffer matching
consumer costs (bills) is less obvious, as there are other effects 40
Complex
Comple
plle
ple
p bids
lex b
bi
bid
iid
ds
Of
Off
O
Offer
ff
ffer
ffer
to be considered. Simple
Siim
Sim
S imple
pllle
p e bids

Probably Jensen and Skytte [1] were the first to point out 0
0 10 20 30 40 50 60 70 80
that the integration of renewable production (wind power in Energy (GWh)
their work) in the electricity mix could lead to a reduction in
the wholesale market clearing price. Sensfuss et al. [2] Fig. 1. Example of simple and complex rules matching.
analyzed the case of wind power in Germany, and Saénz de
Miera et al. [3] the case of Spain. They found heuristically that II. THE SPANISH-IBERIAN MARKET
more wind power generation integration results in a reduction
of the electricity clearing price. More recently Burgos et al. [4] Summarizing the process, the operation of the
offered an overview of the case of Special Regime of Spanish/Iberian Market Operator (OMEL-OMIE) is as follows.
Every day, the Market Operator receives bids from agents

978-1-4799-6095-8/14/$31.00 ©2014 IEEE

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(selling and buying), one day ahead, and clears the market
according to the marginal price procedure. The System
Operator validates units schedule considering the electrical
system’s technical constraints. After that, the hourly merit-
order curves of generation and demand are elaborated. Finally,
the matching algorithm is run in order to find the crossing point
of the supply and demand curves. As a result, a single hourly
marginal price (and traded energy) for the whole market is set.
All generating units are rewarded at this clearing price,
regardless of the price specified in their bids for the considered
hour.
Renewable energy producers are rewarded in two ways.
They perceive the clearing market price plus a regulated
premium (to compensate renewable producers for their
marginal costs and for the risk of using a less mature
technology). Thus, the integration of renewable producers
affect consumers in two opposite ways: it leads to a reduction
of the cost of the energy due to the reduction of the market
clearing price (the market component of the price) but,
simultaneously the consumers have to pay the regulated
premium to the renewable producers.
Two kinds of bids are considered in the Spanish/Iberian
Electricity Market. Simple bids are just simple price and
energy bids. Complex bids are bids which include any of the
following conditions: indivisibility of blocks of energy,
minimum income, scheduled stops and load gradient. First, the
matching procedure of the Market Operator (OMEL-OMIE)
finds a solution for simple bids (Fig. 1). Then, an algorithm
finds a new solution taking into account complex bids. After
that procedure, the final clearing price and traded energy are
set for the considered hour. As used to happen in optimization
problems in which increasing of the number of restrictions
leads to a deterioration of the optimal solution, complex bids
increase the final clearing market prices and reduces the traded
energy.
Currently, the Spanish/Iberian market regulation requires
that the Market Operator includes all bids received from
renewable generators as long as it does not cause any technical
difficulty or risk for the operation of the system. Those
generators present bids with null value so that the aggregate
supply curve shifts to the right. As consequence, cleared
energy price drops and the energy matched grows. Since the
demand curve is very inelastic, relatively small variations in
the amount of renewable generation can produce significant
price reduction in the hourly market but, usually, only a slight
increase of the traded energy. This means savings for the
consumers and less profits for conventional generators.
The main mechanism by which the production of electricity
from renewable resources such as wind produces a downward
pressure on the price of wholesale electricity market is the
displacement of conventional technologies as can be seen in
the frame of wholesale price versus supply (p = p (WG)) and
demand (p = p (WD)) as shown in Fig. 2 [5].
The integration of a certain amount of renewable energy,
ǻWR, with very low or even null marginal cost, displaces all
kinds of conventional technologies (thermal-based, with higher
marginal cost). This displacement to the right of the offer curve
leads to lower the clearing electricity prices. This is the key
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mechanism which is mainly related to the avoided cost of fossil
fuel. This effect is described in Fig. 2 by the shift to the right of
the primitive offer curve. In addition, the presence of a growing
share of renewable generation in the energy mix reduce the
number of CO2 allowances needed by the electricity generation
sector to cover their greenhouse emissions as well as the
aggregate demand of fossil fuel (oil, gas). This secondary
effect puts a net supplementary downward pressure on the
wholesale electricity price.
III. METHODOLOGY
A method similar to the procedure used by the Market
Operator (OMEL-OMIE) has been used in order to analyze any
of the considered scenarios. The basic information is the hourly
merit-order generation and demand curves, retrieved from the
historic data available at the Market Operator (OMEL-OMIE)
web page [6]. First, the simple matching procedure is used to
find the matching point A(Wa,pa) for simple bids (energy and
price), as shown in Fig. 2. Later, the new merit-order
generation curve is developed, taking into account the
appropriate conditions of the bids (amount of energy and price)
corresponding to the generation technology under
consideration. For example, to consider the case of integrating
an amount of renewable energy, ǻWR, as they offer energy at
null price, the new merit-order generation curve is created by
simply shifting to the right the initial offer curve an amount
HTXDOWRǻWR, as shown in Fig. 2.
200
Clearing Price (€/MWh)
Demand
150
Generation
merit-order
100
A(Wa,pa) Generation + renewable
pa merit-order
ǻp = pa - pb
50
pb B(Wb,pb)
Wa Wb
0
0 10 20 30 40 50 60
ǻWR Energy (GWh)
Renewable ǻW = Wb - Wa
Fig. 2. Right shifting of the merit order generation curve due to the
integration of renewable.
When developing new generation scenarios, making
changes in the supply curves, it is necessary to make the
hypothesis that the bids of the other agents would remain the
same when entering or removing new generation bids.
Fortunately, this hypothesis can be considered satisfied as each
market agent (both sales and purchase) elaborates their bids
without knowing the bids of the other agents.
Once the corresponding merit-order generation curve has
been set, the simple matching procedure is used again to find
the new matching point, B(Wb,pb) corresponding to the new
scenario. Finally, the complex conditions are incorporated to
obtain the final matching point B(W,p). As these conditions
means the use of a complicated heuristic method, the effect of
the complex conditions are modelled by means of two random
variables, XW and Xp, which describe the variation in the deviation of 16.60 €/MWh, for the error in the estimation of the
clearing point of the market (price increase and reduction of price, and a mean value of 1.56 MWh and standard deviation
energy traded). With the help of these random variables, the of 1.74 GWh, for the traded energy.
final matching point (W,p) is estimated as (West,pest):
West Wb  X W (1) TABLE I. DIFFERENCE BETWEEN THE ACTUAL MEAN HOURLY VALUES
OF THE CLEARING PRICES AND TRADED ENERGY (COMPLEX RULES, PACTUAL
AND WACTUAL) AND ITS CORRESPONDING ACTUAL VALUES WITH SIMPLE
pest pb +X p (2) RULES (PSIMPLE AND WSIMPLE). XP = PACTUAL – PSIMPLE , XW = WSIMPLE –
WACTUAL
A. Characterization of the Effect of the Complex Bids Mean value
Mean value
In order to characterize the values of the random variables of the actual Increment of
of the actual Mean value of
price the price due
XW and Xp, the hourly historical data available at the Market price (simple the price
Year (complex to the complex
Operator (OMEL-OMIE) [6] have been used to compute the rules)
rules)
difference
rules
differences (and its frequency) between the actual values of psimple (€/MWh)
pactual (%)
(€/MWh)
price and traded energy (complex rules) and the corresponding (€/MWh)
values (price and traded energy) with simple rules. 2008 38.65 64.43 25.78 67
2009 17.54 36.97 19.42 111
Table I shows the result of comparing the actual mean 2010 10.74 37.00 26.26 244
values of price and traded energy in the wholesale market 2011 21.59 49.92 28.34 131
(complex rules) and its corresponding actual mean values with 2012 20.83 47.74 26.91 129
simple rules. Figure 3.a shows the histogram of frequencies 2008-12 21.87 47.21 25.34 116
corresponding to the increment of clearing prices, f(Xp), and Actual
Actual traded
Fig. 3.b shows the corresponding histogram of frequencies for traded energy
Difference in
Reduction of
the reduction of the energy, f(XW). Figure 3 clearly show that Year energy (complex
the traded
the traded
the histograms of reduction of energy and increment of price energy
(simple rules) rules) energy (%)
(TWh)
do not show normal distributions, despite the large size of the Wsimple (TWh) Wactual
sample considered. One might think that with such an (TWh)
extraordinarily large sample, the theorem of the central limit 2008 249.44 246.64 2.80 1.12
2009 242.73 231.05 11.68 4.81
should ensure obtaining normal frequency distributions. But 2010 232.12 221.13 10.99 4.73
this is not the case, since the complex conditions matching 2011 227.84 213.88 13.96 6.13
make that bids may be linked for several consecutive hours. 2012 240.68 223.92 16.76 6.97
2008-12 1192.81 1136.61 56.20 4.71
As can be seen in Table I, the restriction due to the complex
rules, for the 2008-12 period, leads to a mean value of increase
3.5
of the hourly clearing price of 25.34 €/MWh, and a a)
corresponding reduction of the traded energy of 56.20 TWh. 3.0
Figure 3 also shows that clearing prices spreads over a broad
Frequency of the price
increment f(Xp) (%)

2.5
range, due to great variability of the clearing prices along the
considered period. The values for the 2008-12 period are: 2.0
17.42 €/MWh for simple matching rules and 15.87 €/MWh for
1.5
complex rules. On the contrary, the standard deviation of the
traded energy is quite small, due to inelasticity of the demand. 1.0
The values for the 2008-12 period are: 5.5 MWh for simple
0.5
matching rules and 5.4 €/MWh for complex rules.
0
Table II shows the impact of the complex matching rules 0 20 40 60 80 100
on the cost of the traded energy in the wholesale market. As Increment of the price, Xp (€/MWh)
can be seen, for the 2008-12 period, the cumulated increment 0.035
b)
in the cost of the sold energy due to the complex matching 0.030
Frequency of the energy

rules was 27.55 G€, which is almost half (49.81%) of the

reduction f(XW) (%)

actual cost of the traded energy in the market (55.31 G€). 0.025

Table III shows the result of comparing the actual values of 0.020
price and traded energy in the wholesale market and its 0.015
corresponding estimated values using (1)-(2). As can be seen,
along the entire period 20108-12, the relative error in the 0.010
estimation of price was of -1.8% and -0.01% for the energy. It 0.005
can also be observed that relative errors in the estimation of
prices are higher than in the estimation of the traded energy. 0
-6 -4 -2 0 2 4 6
The statistical distribution of the errors in the estimation of Reduction of the energy, XW (GWh)
prices and traded energy (not shown) resemble normal Fig. 3. Histograms of the clearing price increase a), and b) the traded energy
distributions with a mean value of 0.85 €/MWh and standard reduction.

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 IV. IMPACT OF RENEWABLE GENERATION the results with the initial situation, the average price and
The effect that a variation of the energy bids (amount of energy variations (ǻpǻWR), ǻWǻWR)) have been estimated.
energy) from renewable producers is analyzed. First, the effect Figure 4 shows the estimation of the mean values of the
of reducing the bids from renewable energy generators, to the variation of the hourly clearing price, ǻpǻWR), and traded
extent that the market only considered conventional generators, energy, ǻWǻWR), resulting from a variation of the integrated
is studied. Then the effect of increasing the integration of of renewable energy, ǻWR, in the hourly market, in the range
renewable producers in the market is considered. (-6 GWh, 6 GWh), along the period 2008-2012. In some
extreme cases in which the considered amount of renewable
TABLE II. INCREMENT OF THE COST OF THE TRADED ENERGY IN THE energy removed from the wholesale market is very high, it
WHOLESALE ELECTRICITY MARKET DUE TO THE COMPLEX MATCHING RULES may happen that this amount were greater than the actual
amount of renewable energy traded in the market. In these
Cost of the traded energy in Increment of the cost due to
Year the wholesale market complex matching rules cases, the considered amount of renewable energy removed
(G€) (G€) (%) was only the amount actually integrated in the market. The
2008 16.27 5.96 36.60 range of variation between -6 GWh and 6 GWh has been
2009 8.80 4.26 48.37 chosen so that this effect only occurs rarely.
2010 8.45 5.79 68.52
2011 10.89 5.83 53.48 Figure 4 shows that the variation of the hourly clearing
2012 10.89 5.72 52.51 price curve, ǻp = ǻpǻWR) [€/MWh], and traded energy,
2008-12 55.31 27.55 49.81 ǻW = ǻWǻWR) [GWh], can be approximated by their
corresponding regression lines as follows.
TABLE III. A COMPARISON AMONG THE ACTUAL MEAN VALUES OF THE
PRICE, P, AND TRADED ENERGY, W (COMPLEX RULES), AND ITS x For the case of removing renewable production:
CORRESPONDING ESTIMATED VALUES, WEST = WS – XW AND PEST = PS – XP
'p ('W ) 3.8 ˜ 'W  0.7027  'W  ( 6 GWh, 0)
Mean value
Mean value
Mean
R R R
of the Error of Standard 'W ('W ) 0.2737 ˜ 'WR  0.073  'W  ( 6 GWh, 0)
of the value of
Year actual price
estimated
the price
the deviation of R R
price estimation the difference x For the case of integrating renewable production:
pactual difference
pest (%) (€/MWh)
(€/MWh) (€/MWh)
(€/MWh) 'p ('W ) 2.0 ˜ 'W  0.8325  'W  (0, 6 GWh)
2008 64.43 63.11 1.32 -2.0 17.41 R R R
'W ('W ) 0.1472 ˜ 'WR  0.027  'W  (0, 6 GWh)
2009 36.96 41.84 -4.88 13.2 14.69 R R
2010 37.02 35.31 1.71 -4.6 16.78
The slopes of the regression lines (removing-integrating)
2011 49.92 46.01 3.91 -7.8 16.64
suggest that for every GWh of renewable production removed
2012 47.22 45.05 2.17 -4.6 16.01
from the market, the clearing price grows 3.8 €/MWh, and the
2008-12 47.12 46.27 0.85 -1.8 16.60 traded energy decreases 274 MWh. In a similar way, for every
Mean
Mean additional GWh of renewable production integrated in the
value Mean Standard market, the clearing price decreases 2.0 €/MWh, and the
value of Error
of the value deviation
the actual
estimated of the
of the
of the traded energy grows 147 MWh.
Year traded energy
traded energy energy
energy estimation 30 1.5

Variation of traded energy, ǻW (GWh)

energy difference difference
Wactual (%)
Variation of price, ǻp (€/MWh)

West (GWh) (GWh)

(GWh) 20 1.0
(GWh)
2008 28.08 27.14 0.94 -3.34 1.50 10 0.5
2009 26.37 26.42 -0.04 0.15 1.60 ǻp(ǻWR ) ǻW(ǻWR)
0 0
2010 25.24 25.22 0.03 -0.11 1.70
2011 24.42 24.71 -0.29 1.20 1.64 -10 -0.5
2012 25.49 26.12 -0.63 2.45 1.85
-20 -1.0
2008-12 25.92 25.92 0.002 -0.01 1.74
-30 -1.5
-6 -4 -2 0 2 4 6
Variation of renewable energy, ǻWR (GWh)
As mentioned previously, the actual hourly merit-order
supply curves have been modified introducing different values Fig. 4. Variation of the mean values of the hourly clearing price and traded
of renewable energy in the hourly market (ǻWR) and the energy corresponding to a variation of the integrated renewable energy.
simple rules matching have been used to determine the
corresponding clearing price and traded energy. Then the
clearing price and traded energy resulting from the complex
rules matching have been estimated using the random
variables, XW and Xp, and expressions (1) and (2). Comparing

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 The whole range of variations can be better fitted by two V. CONCLUSIONS
fifth order polynomial as: The influence of the integration of different amounts of
'p ('W ) 5.31 ˜104 'W 5  6.24 ˜103 'W 4  renewable generation in the Spanish/Iberian Electricity Market
R R R has been analysed. For that purpose, two random variables
2 3
1.24 ˜10 'W  0.355 ˜ 'W  2 have been used in order to obtain the corresponding (complex)
R R matched price and energy. The relation between changes in
3 ˜ 'W  0.5681 renewable energy production on the variations of the clearing
R
price and traded energy has been estimated by means of
 'W  (6 GWh, 6 GWh)
R regression lines and also by means of fifth order polynomials.
'W ('W ) 8.07 ˜105 'WR 5  4.49 ˜104 'WR 4  As a result, it has been confirmed that renewable generation
R has an almost neutral effect on the consumers, as the premium
2.87 ˜103 'WR 3  2.36 ˜102 ˜ 'WR 2  paid by the consumers is roughly equal to the reduction of the
0.19 ˜ 'WR  0.018 cost of the traded energy due to market effect.
 'W  (6 GWh, 6 GWh) For every GWh of renewable energy introduced in the
R market the hourly clearing price is reduced by an average of 2
Figure 5 shows a comparison between the cost saving and €/MWh. On the contrary, for every GWh of renewable energy
the amount of premiums received by the renewable generators removed from the wholesale market the clearing price
for the analysed period 2008-2012. As can be seen, in 2008 and increases by an average of 3.8 €/MWh.
2009 savings due to the merit-order effect are higher than the
premiums paid for the consumers, while for the reminder last Along the period 2008-2012, the savings due to the merit-
three years, premiums are higher than savings. This is related order effect were 5.6% less that the premiums paid for the
to the economic recession in Spain that leads to a contraction consumers, while the complex matching rules are responsible
of the demand, combined with the growing of the share of the of almost half (49.81%) of the cost of the traded energy.
renewables in the energy mix. As a result, during the last years
the clearing price is under the granted minimum premium for a ACKNOWLEDGMENT
significant number of hours. Greater share of renewables at the
granted minimum premium results in growing yearly REN-E This work was supported in part by the Spanish MEC and
premium. In 2012, the difference between premiums paid by the European Commission (ERDF - European Regional
consumers (6.1 G€) and the savings due merit-order effect (4.6 Development Fund) under grant ENE2011-27984, and by the
G€) was 1.6 G€ (overcost for the consumers). For the Government of Andalusia under the research project Ref.
examined period 2008-2012, the difference (22.5 G€ - 21.2 P-09-TEP-5170.
G€) reduced to 1.3 G€. For 2005-2012 the net saving for the
consumers was 4.5 G€ (26.9 - 31.4 = -4.5 G€). As we REFERENCES
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[6] OMIE-OMEL, Web page of the Operador del Mercado Ibérico de
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Saving

0
2008 2009 2010 2011 2012

Fig. 5. Comparation of the yearly the premiums for the renewable generators
and the saving in the cost of the traded energy.

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