Abstract

Conventional wisdom claims that renewables and storage are complements. However, we show that this relationship does not always hold. In markets where renewables availability moves procyclically in relation to demand and renewable capacity is small, increasing storage (renewable) capacity negatively impacts renewable (storage) firms and total welfare. The same applies to the “scarce” renewable technology in multi-technology markets with both procyclical and countercyclical technologies. These findings have policy implications for the optimal timing and effectiveness of mandates or subsidies for renewables and storage. Simulations of the Spanish wholesale electricity market illustrate our results.