How Wind and Solar Erode Generator Revenues: Evidence From Australia's National Electricity Market

ABSTRACT

This paper uses daily data from 342 power generators in Australia's National Electricity Market to quantify the impacts of state‐level wind and solar generation on generator revenue from electricity sales. State‐level wind and solar generation potentials are used as instruments. Results show that percentage point increases in the state‐level daily wind and solar shares on average lead to 1.6% and 2.8% reductions in daily generator revenue, respectively. Increases in the state wind and solar shares benefit generators of those types. Higher wind shares significantly reduce the revenues of coal‐fired, gas/diesel and hydro generators, and higher solar shares significantly reduce coal‐fired generator revenues. Additional daily wind generation impairs generator revenue throughout the day, whereas for solar there are negative effects during daylight hours and positive effects in the evening. Effects emerge via altered dispatch patterns and reduced wholesale electricity prices. The findings are relevant for other jurisdictions undergoing similar transitions.