Optimizing solar farm locations for revenue and reduced electricity costs in deregulated electricity markets

Abstract

The global share of renewable energy sources in the electricity mix has increased substantially, with the rate of installation continuing to accelerate. Geographical diversification of renewable generation can lead to a more balanced generation profile, thereby contributing to price stability despite the intermittent nature of supply. The issue of revenue cannibalization among renewable energy sources has become increasingly relevant with centralized renewable power generation. The proposed methodology examines the impact of incremental addition of solar photovoltaic capacity, with power profiles modeled based on ERA5 weather data, on present day-ahead electricity markets. This is achieved by the manipulation of day-ahead bid curves from NordPool to establish a new day-ahead market price caused by the addition of 100 MWp of solar photovoltaic capacity at different geographical locations. The findings indicate that the regions most effective in reducing electricity prices are not necessarily those with the highest energy production; rather, the temporal coherence of generation with bulk renewable output plays a crucial role in determining market effects, especially in the Nordic countries with significant seasonal variations. Electricity cost reductions of 18 M€/a were observed with the highest price cannibalization rates of 13 €/MWh. The results highlight the importance of considering generation patterns, not only capacity, when assessing the impact of renewable energy integration.