The dark side of the sun : how solar power production affects the market value of solar and gas sources

Using daily data for the Italian wholesale day-ahead power market over the period 2008-2013, we assess the impact of solar production on the market value of solar and gas sources, defined using the concepts of value factor and unit revenues. We find that, on average, solar generation negatively affects the solar source market value, causing a departure from the grid parity condition and mining their competitiveness once public incentives are removed. This negative relation is not constant over time and becomes stronger for increasing solar penetration in the energy mix. Interestingly, the opposite is found when looking at gas. While the relation between solar production and the gas market value is negative or not significant when the former is low, it turns positive for higher levels of solar production. This is the result of a change in gas producers' bidding strategies. Indeed, in the Italian power market the highest hourly price has shifted from the peak daytime, when solar production is concentrated, to the off-peak nighttime, when solar is absent from the market and gas can exploit temporary market power.