Intermittency and Electricity Retailing : An Incomplete Market Approach

We analyze the integration of intermittent renewables-based technologies into an elec- tricity mix comprising of conventional energy. Intermittency is modeled by a contingent electricity market and we introduce demand-side flexibility through the retailing structure. Retailers propose diversified electricity contracts at di ff erent prices, but in an insu ffi cient number to cover intermittent production. These delivery contracts are modeled similarly as numeraire assets. We study the competitive equilibrium of the state-contingent whole- sale electricity markets and the delivery contract markets. We also provide an analysis linking the delivery contracts to social welfare. Finally, we discuss the conditions under which changing the delivery contracts improves penetration of renewables and increases welfare. These provide useful insights for managing intermittency and achieving renewable capacity objectives