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Optimal Allocation of Variable Renewable Energy Considering Contributions to Security of Supply

Electricity markets are increasingly inﬂuenced by variable renewable energy such as wind and solar power with a pronounced weather-induced variability and imperfect predictability. As a result, the evaluation of the capacity value of variable renewable energy, i.e. its contribution to security of supply, gains importance. This paper develops a new methodology to endogenously determine the capacity value in large-scale investment and dispatch models for electricity markets. The framework allows to account for balancing eﬀects due to the spatial distribution of generation capacities and interconnectors. The practical applicability of the methodology is shown with an application for wind power in Europe. We ﬁnd that wind power can substantially contribute to security of supply in a decarbonized European electricity system in 2050, with regional capacity values ranging from 1 - 40%. Analyses, which do not account for the temporal and spatial heterogeneity of the contribution of wind power to security of supply therefore lead to ineﬃcient levels of dispatchable back-up capacity. Applying a ﬁxed wind power capacity value of 5% results in an overestimation of ﬁrm capacity requirements in Europe by 66GW in 2050. This translates to additional ﬁrm capacity provision costs of 3.8 bn EUR per year in 2050, which represents an increase of 7%.