Thesis defense: Juha Teirilä, Studies on integrating solar and wind power into electricity markets

The doctoral dissertation of M.Sc. (Tech., Econ.) Juha Teirilä named Studies on integrating solar and wind power into electricity markets will be examined at the Oulu Business School on Friday 18 June, 2021 at 12 (noon). The event can be followed remotely via Zoom.

Opponent: Professor of Economics Otto Toivanen, Aalto University School of Business
Custos: Professor emeritus Rauli Svento, Oulu Business School

Studies on integrating solar and wind power into electricity markets

Solar and wind power are expected to play a central role in future carbon-neutral electricity generation systems based on renewable sources. However, integrating intermittent and weather-dependent production into electricity markets that are designed for well-predictable variations in demand and supply is not straightforward.

This dissertation addresses three specific economic problems regarding how current electricity generation systems can cost-efficiently absorb more solar and wind power.

In the first study, a residential solar panel and battery adoption model is estimated using data from Germany in 2000–2018. Drawing from adverse selection literature in contract theory, different subsidy policy combinations are examined to determine whether they would lead to any savings in governmental subsidy costs. The main finding is that combining a feed-in tariff with an investment subsidy for batteries is cost-efficient.

The second study addresses the co-existence of fluctuating renewable power and nuclear power plants, which are not particularly flexible in adjusting their output power. The study examines whether the nuclear power plants’ inflexibility hinders the large uptake of solar and wind power in Germany or whether the plants’ low marginal cost of generating electricity outweighs the costs stemming from their inflexibility. The findings indicate that the inflexibility is mainly reflected in increasing balancing costs, but the solar and wind power capacity can still grow notably in the country without significant increases in these costs.

The third study examines whether the recently introduced capacity market in Ireland provides an additional lever for the dominant firm in the electricity market to exercise market power. Using ex-ante simulations, the study shows that the largest firm, by taking advantage of its dominant position, can increase costs in the capacity market notably when compared to the least-cost solution. The main forms of abuse of market power would be capacity withholding to drive up the capacity payments and predatory pricing with the aim of forcing rivals to exit the market.

Dissertation