The "hidden cost" of renewable energy sources in electricity pool markets

The aim of this paper is to explore the "hidden cost" associated with the uncertainty in power generation that Renewable Energy Sources (RES) introduce in electricity pool markets. This cost, which is additional to the more obvious cost originating from the high RES feed-in tariffs, is due to two main factors. Firstly, the RES generation forecast error, which reflects this uncertainty, may increase the deviations of the day-ahead scheduled energy of conventional generation from the actual one, possibly incurring an extra cost at the ex post settlement stage. Secondly, the increased need for ancillary services, to better respond to the RES uncertainty, may also incur an additional cost. The combination of these two factors affects the unit commitment and dispatching and hence the potential recovery payments associated with the non-convexities of the market design. To explore these hidden costs, we simulate a model of the Greek wholesale electricity market for several scenarios of the RES penetration level, forecast accuracy, and ancillary services requirements, using historical data, and discuss the results.