**1. Introduction**

238 Modeling and Optimization of Renewable Energy Systems

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The deployment of renewable energy is a key concept in European Union by environmental and economic reasons. This energy contributes to the securing of the objectives established by Kyoto Protocol of the United Nations Framework Convention on Climate Change (Kyoto, 11 December 1997) which entails that European Union has made the commitment to reduce their emissions by 8% during the period 2008-2012 and by at least 20% below 1990 levels by 2020.

In order to reduce emissions of carbon dioxide and others greenhouse gases, special strategies have been implemented to promote electricity generation from renewable within the regulatory framework of the European Union. The 2009/28/EC directive of the European Parliament on the promotion of the use of energy from renewable sources requires each member state to increase its share of renewable energies in energy mix to raise the overall share to 20% by 2020. In Spain, the target means that renewable sources must account for at least 20% of final energy consumption by 2020 - the same as the EU average.

In Spain, the Renewable Energy Development Plan 2005-2010 -and the Renewable Energy Plan 2011-2020 which is concurrently being drafted, processed by the Industry and Energy Council of the Spanish government and the Spanish Institute for Energy Diversification and Saving-IDEA, set the policies and strategies to its deployment of renewable energies (RES). According to the first plan is expected a contribution from RES of 12.1% of primary energy consumption in 2010 and electricity generation from RES of 30.3% of gross electricity consumption. As a result of the design of policies to promote renewable energies, Spain has registered an increase in the share of electricity from RES from 17.8% in 1990 to 29.4% in 2009 as we can see in Figure 1.

The development of renewable energy industries became a way to achieve environmental objectives. Besides, provides several positive effects, mainly referred to the expected increasing in energy self-sufficiency, employment, investment and production, the improvement of opportunities of regional and local development and the creation of a domestic industry (Moreno and López, 2008). Some of those positive effects which have been quantified by Deloitte-Appa (2009) are:

An Analysis of the Effect of Renewable Energies on Spanish Electricity Market Efficiency 241

The creation on the wholesale electricity market is one of the key concepts in the Spanish

Theoretically, competitive markets should lead to efficiency gains in the economy. However, the real benefits from increasing the competition are object of debate because the market´s opening–up does not necessary imply market efficiency and competitive prices. It

Regarding the electricity supply, the electricity generated from renewable energies is physically integrated into the wholesale electricity market and can influence electricity

These production technologies are characterized by having lower short-term marginal cost than fossil conventional Technologies (Jensen & Skytte, 2003; Weigt, 2009). Therefore, their entrance in the electricity markets can allow the reduction of the wholesale electricity prices

However, there is not clear evidence about the effect of the development of renewable energies on the final electricity prices as the development of renewable energy technologies is mainly driven by different public renewable support schemes. Most RES-E support systems are financed via the electricity market, which could increase the electricity prices.

Significant econometric evidence about the effect of renewables is not easy to find at country level. Traditional parametric methods require an elevated sample size for the efficient estimation of the coefficients in the models. However, the sample data regarding the introduction of renewables in the liberalized market is limited as legal opening electricity market in Spain finish in 2003. Therefore, when trying to estimate models through

As an alternative to explain the impact of RES-E on electricity prices we propose a model by

This approach has been defined by Golan (2002) as "a sub-discipline of processing information from limited and noisy data with minimal a priori information on the datagenerating process". It has its roots in Information Theory and builds on the entropyinformation measure (Shannon 1948), the classical maximum entropy principle (Jaynes 1957a, 1957b), which was developed to recover information from underdetermined models,

We investigate its possibilities in the estimation of Spanish electricity market efficiency.

The chapter is structured in the following way: firstly, the effects of renewable energies on wholesale electricity market are studied; secondly, the main characteristics of the different mechanisms of renewable support used in the European Union are briefly described. Later, we analyze the promotion policies of this type of production technology in Spain and the consequent effects on the economy. After that, the Maximum Entropy Econometric procedure is described and finally the estimated effect of RES-E on Spanish electricity prices is presented.

electricity industry restructured process (Law 54/1997 and Law 17/2007).

because they displace the marginal technology based on fossil fuel.

Then, the overall effect of the RES-E on electricity prices is not clear.

and the Generalized Maximum Entropy Theory (Golan et al., 1996).

regression procedures a dimensionality problem arises.

using a Maximum Entropy Econometric approach.

Some concluding remarks complete the paper.

market efficiency and competitiveness.

depends on the characteristics of the electricity supply and the electricity demand.


Fig. 1. Electricity generated from renewable sources, % of gross electricity consumption. Source of data: Eurostat.

In contrast to the investment-induced positive production and employment effects, some disadvantages are associated to renewable technologies as those associated to their predictability and manageability, transportation systems, costs related to adjustments in production and their prices.

Regarding the RES-E effects on electricity prices a controversial debate has arisen. This chapter attempts to contribute to this debate.

The inclusion of electricity generation from renewable energy (RES-E) has been produced in a more liberalized electricity market. The energy market liberalization has been implemented across the European Union since 1996 (Directive 96/92/EC of the European commission concerning common rules for the internal market in electricity).

The electricity industry is progressively restructuring in order to reduce the amount of economic- productive and pricing- inefficiencies that existed in the former verticallyintegrated, state-owned monopoly regime.

 *A positive contribution of renewable energies to GDP in Spain.* The increase of the industry of renewable energies in the period 2005-2008 gets a value of 55% in terms of GDP. The renewable technologies with greater impact on GDP have been wind energy,

 The development of the *research, development and innovation activities*. The high increase of some renewable production technology has entailed the creation of an important industry related to equipment and components fabrication with an

 The development of a fundamental concept in the *environmental protection* of Spain. The emissions of carbon dioxide (CO2) are reduced in around 23,6 ton millions in the period

 The *increasing of employment* in the renewable energy industry. The creation of employment has a value of 120.722 jobs until 2008. The 62% of them is direct jobs and

Fig. 1. Electricity generated from renewable sources, % of gross electricity consumption.

In contrast to the investment-induced positive production and employment effects, some disadvantages are associated to renewable technologies as those associated to their predictability and manageability, transportation systems, costs related to adjustments in

Regarding the RES-E effects on electricity prices a controversial debate has arisen. This

The inclusion of electricity generation from renewable energy (RES-E) has been produced in a more liberalized electricity market. The energy market liberalization has been implemented across the European Union since 1996 (Directive 96/92/EC of the European

The electricity industry is progressively restructuring in order to reduce the amount of economic- productive and pricing- inefficiencies that existed in the former vertically-

commission concerning common rules for the internal market in electricity).

photovoltaic solar, biomass and mini-hydraulic.

the remaining 37% is indirect employment.

innovative profile.

2005-2010.

Source of data: Eurostat.

production and their prices.

chapter attempts to contribute to this debate.

integrated, state-owned monopoly regime.

The creation on the wholesale electricity market is one of the key concepts in the Spanish electricity industry restructured process (Law 54/1997 and Law 17/2007).

Theoretically, competitive markets should lead to efficiency gains in the economy. However, the real benefits from increasing the competition are object of debate because the market´s opening–up does not necessary imply market efficiency and competitive prices. It depends on the characteristics of the electricity supply and the electricity demand.

Regarding the electricity supply, the electricity generated from renewable energies is physically integrated into the wholesale electricity market and can influence electricity market efficiency and competitiveness.

These production technologies are characterized by having lower short-term marginal cost than fossil conventional Technologies (Jensen & Skytte, 2003; Weigt, 2009). Therefore, their entrance in the electricity markets can allow the reduction of the wholesale electricity prices because they displace the marginal technology based on fossil fuel.

However, there is not clear evidence about the effect of the development of renewable energies on the final electricity prices as the development of renewable energy technologies is mainly driven by different public renewable support schemes. Most RES-E support systems are financed via the electricity market, which could increase the electricity prices.

Then, the overall effect of the RES-E on electricity prices is not clear.

Significant econometric evidence about the effect of renewables is not easy to find at country level. Traditional parametric methods require an elevated sample size for the efficient estimation of the coefficients in the models. However, the sample data regarding the introduction of renewables in the liberalized market is limited as legal opening electricity market in Spain finish in 2003. Therefore, when trying to estimate models through regression procedures a dimensionality problem arises.

As an alternative to explain the impact of RES-E on electricity prices we propose a model by using a Maximum Entropy Econometric approach.

This approach has been defined by Golan (2002) as "a sub-discipline of processing information from limited and noisy data with minimal a priori information on the datagenerating process". It has its roots in Information Theory and builds on the entropyinformation measure (Shannon 1948), the classical maximum entropy principle (Jaynes 1957a, 1957b), which was developed to recover information from underdetermined models, and the Generalized Maximum Entropy Theory (Golan et al., 1996).

We investigate its possibilities in the estimation of Spanish electricity market efficiency.

The chapter is structured in the following way: firstly, the effects of renewable energies on wholesale electricity market are studied; secondly, the main characteristics of the different mechanisms of renewable support used in the European Union are briefly described. Later, we analyze the promotion policies of this type of production technology in Spain and the consequent effects on the economy. After that, the Maximum Entropy Econometric procedure is described and finally the estimated effect of RES-E on Spanish electricity prices is presented.

Some concluding remarks complete the paper.

An Analysis of the Effect of Renewable Energies on Spanish Electricity Market Efficiency 243

Fig. 2. Wholesale Electricity market without RES-E

Fig. 3. Wholesale Electricity market with RES-E
