The Long-Run Efficiency of Renewable Energy in the New England Electricity Market

This paper conducts a simulation analysis of the economic value of wind and solar photovoltaic (PV) energy dispatched in different locations in the New England region. The model used in this paper builds on the one developed by Borenstein (2005), and uses real data on wind and solar generation output and the actual zonal load profiles and prices. After the long-run equilibrium quantities and prices are simulated, each type of renewable energy is added to the system separately, and then jointly. Conditional on the spatial location of renewable energy, share of customers on a particular rate design, and energy-type-specific output characteristics, PV energy may be undervalued and wind energy may be overvalued. Similarly, in the long run, the two types of renewable energy can increase the efficiency of the New England electricity market for a wide range of values. In addition, the model itself and results of this paper have potential policy implications for distributed generation and net metering.