1. Introduction

Intermittent generation refers primarily to renewable electricity sources such as wind and solar power, whose output varies according to weather and natural conditions. Unlike conventional thermal or nuclear generation, intermittent generators cannot necessarily produce electricity whenever the system operator requires it. This characteristic creates an important legal and economic problem: how should electricity pricing models account for variable renewable generation while maintaining grid reliability, investment incentives, and consumer protection?

Traditional electricity pricing was largely designed around predictable generation, regulated tariffs, long-term power-purchase agreements and relatively stable generation costs. Large-scale renewable penetration has required regulators to reconsider these models. Modern pricing arrangements increasingly incorporate time-of-use pricing, locational pricing, balancing charges, ancillary-service costs, curtailment rules, renewable support mechanisms, negative-price mechanisms, and market-based dispatch.

The legal framework therefore has to reconcile several objectives:

promoting renewable-energy investment;

ensuring reliable electricity supply;

allocating balancing and network costs fairly;

preventing discriminatory treatment of renewable generators;

protecting consumers from excessive prices;

maintaining competitive electricity markets; and

achieving statutory environmental and decarbonisation objectives.

2. Meaning and Characteristics of Intermittent Generation

Intermittent generation is electricity production that depends on naturally varying resources.

Examples include:

solar photovoltaic generation;

solar thermal generation;

onshore wind;

offshore wind; and

certain forms of run-of-river hydro generation.

Its principal characteristics are:

A. Variability

Solar generation changes with sunlight, while wind generation changes with wind conditions.

B. Limited dispatchability

A solar or wind generator cannot normally be instructed to increase output in the same manner as a gas turbine.

C. Forecasting uncertainty

Even sophisticated forecasting cannot perfectly predict renewable output.

D. Low marginal operating cost

Once constructed, wind and solar facilities generally have very low marginal generation costs. Consequently, they frequently enter wholesale markets at low or zero marginal prices.

E. System-balancing requirements

When renewable output falls unexpectedly, another resource—such as storage, hydro, flexible gas generation, demand response or interconnection—may have to compensate.

These characteristics directly influence electricity pricing.

3. Why Conventional Pricing Models Are Challenged

Traditional electricity markets frequently relied upon the assumption that generators could adjust production to meet demand.

Intermittent generation changes this relationship.

For example:

If solar generation is extremely high at noon, wholesale prices may fall substantially because large quantities of low-marginal-cost electricity are available.

Later, when solar production falls in the evening while demand remains high:

prices may increase because flexible generation or storage must meet the remaining demand.

This can create a “duck curve” effect and greater price volatility.

The law must therefore determine who bears:

balancing costs;

transmission costs;

distribution-system costs;

curtailment costs;

forecasting errors;

ancillary-service costs; and

congestion costs.

4. Main Pricing Models for Intermittent Generation

A. Feed-in Tariffs

A feed-in tariff guarantees an eligible renewable generator a predetermined price for electricity supplied to the grid.

The advantages include:

revenue certainty;

easier financing;

rapid renewable deployment; and

reduced investment risk.

However, a fixed tariff may not reflect actual system conditions.

If electricity has little market value at a particular time, a generator receiving the same tariff regardless of system conditions may impose additional costs on consumers.

Consequently, modern systems have increasingly moved toward more market-sensitive mechanisms.

5. Contracts for Difference

A Contract for Difference (CfD) attempts to combine investment certainty with market participation.

The generator receives the market price but has a contractual settlement against a predetermined strike price.

If:

Strike price > reference market price

the generator receives a payment representing the difference.

If:

Market price > strike price

the generator may pay the difference back, depending on the contractual design.

This approach can reduce revenue volatility while preserving incentives to participate in electricity markets.

The United Kingdom has extensively used CfDs as part of its renewable-energy policy.

6. Renewable Portfolio and Renewable Purchase Obligations

Another pricing mechanism is the imposition of renewable-energy obligations on electricity suppliers or distribution utilities.

In India, the Renewable Purchase Obligation (RPO) framework requires specified entities to procure electricity from renewable sources in accordance with applicable regulations.

Such systems effectively create a policy-supported demand for renewable electricity.

The associated economic instrument can include:

renewable-energy certificates;

compliance markets;

alternative compliance mechanisms; and

penalties for non-compliance.

7. Market-Based Pricing

Under competitive wholesale electricity markets, renewable generators may submit bids reflecting their marginal costs.

Because wind and solar have very low marginal costs, they can frequently bid at or near zero.

The market may then clear at a low price when renewable output is abundant.

This produces an important economic phenomenon:

Merit-order effect

Low-marginal-cost renewable generation displaces higher-marginal-cost generators from the dispatch stack.

Consequently:

More renewable generation → lower short-run wholesale prices, although the effect varies according to demand, transmission constraints, fuel prices and market design.

8. Negative Electricity Prices

A particularly important legal issue is negative pricing.

When electricity supply substantially exceeds demand and generators face technical or contractual reasons for continuing production, the market-clearing price can become negative.

This creates a legal question:

Should renewable generators continue receiving support when the market value of their electricity is negative?

Different jurisdictions have adopted different approaches.

Some support mechanisms:

suspend payments during negative-price periods;

reduce subsidies;

impose market-exposure requirements; or

allow generators to curtail production.

These rules attempt to prevent inefficient production incentives.

9. Time-of-Use Pricing

Time-of-use tariffs charge consumers different prices during different periods.

For example:

This pricing model can encourage consumers to shift consumption toward periods of abundant renewable generation.

10. Real-Time Pricing

Real-time pricing is even more responsive.

Electricity prices change according to near-real-time system conditions.

This can encourage:

electric-vehicle charging during renewable surplus;

industrial load shifting;

battery charging;

thermal storage;

flexible commercial demand; and

demand-response participation.

Thus, pricing becomes a mechanism for integrating renewable generation rather than simply compensating generators.

11. Locational Marginal Pricing

Where electricity markets use Locational Marginal Pricing (LMP), the price of electricity varies according to location.

The price incorporates factors such as:

energy production costs;

transmission congestion; and

marginal losses.

This is particularly important for intermittent generation because renewable resources are geographically concentrated.

For example:

A wind farm may produce extremely cheap electricity, but if transmission capacity is insufficient, its electricity may have limited value at a distant demand centre.

LMP therefore provides an economic signal concerning:

where generation should be built;

where transmission should be expanded; and

where storage could provide value.

12. Curtailment and Pricing

Curtailment occurs when a renewable generator is prevented from producing electricity that it could otherwise generate.

It may occur because of:

transmission congestion;

system security requirements;

excess generation;

network constraints; or

insufficient demand.

A central legal issue is:

Who should bear the financial consequences of curtailment?

Possible approaches include:

Generator-risk model

The generator bears the loss.

Network-risk model

The network operator compensates the generator.

Socialised-cost model

Costs are recovered from electricity consumers.

Contractual model

The PPA determines compensation.

The appropriate model depends upon the regulatory framework and the reason for curtailment.

13. Balancing Charges

Because intermittent generators cannot perfectly predict production, system operators require balancing resources.

A regulatory system may impose:

imbalance charges;

deviation settlement charges;

forecasting obligations; and

scheduling requirements.

The objective is not necessarily to penalise renewable generation but to ensure that market participants internalise some of the costs created by inaccurate schedules.

In India, the Deviation Settlement Mechanism (DSM) provides an important example of regulatory treatment of deviations from scheduled electricity injection or drawal.

14. Storage and Pricing

Energy storage changes the economic characteristics of intermittent generation.

A battery can:

charge when renewable electricity is abundant;

discharge when renewable output falls;

participate in balancing markets; and

provide ancillary services.

Therefore, electricity pricing frameworks increasingly need to recognise storage as a separate market participant or resource category.

Storage can effectively transform:

variable renewable electricity

into:

dispatchable electricity with temporal flexibility.

15. Case Law

A. Energy Watchdog v. CERC (India)

The Supreme Court of India in Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80 considered issues concerning power-purchase agreements, tariff arrangements and regulatory intervention.

Although the case did not concern intermittent renewable generation specifically, it is highly relevant to electricity pricing because it emphasises the importance of the contractual and statutory framework governing electricity tariffs and regulatory jurisdiction.

The Court considered the relationship between contractual arrangements and regulatory powers under the Electricity Act, 2003.

Relevance

For renewable-energy pricing, the case demonstrates that:

tariff arrangements must be interpreted within their contractual framework;

regulatory intervention must have a statutory basis; and

electricity pricing cannot be separated from the legislative structure governing electricity regulation.

B. Adani Power (Mundra) Ltd. v. Gujarat Electricity Regulatory Commission

The Supreme Court's decisions concerning Adani Power's PPAs and tariff issues demonstrate the importance of contractual tariff mechanisms and regulatory approval in electricity markets.

The broader significance for intermittent generation is that renewable PPAs must clearly allocate:

price risk;

change-in-law risk;

curtailment risk;

scheduling obligations; and

other system-related costs.

C. Gujarat Urja Vikas Nigam Ltd. v. Solar Power Developers

Indian renewable-energy litigation has also concerned the contractual and regulatory treatment of solar projects, including tariff and procurement arrangements.

These disputes demonstrate the importance of maintaining regulatory certainty where investors have developed projects on the basis of government-approved renewable procurement mechanisms.

16. United States: Hughes v. Talen Energy Marketing, LLC

The U.S. Supreme Court decided Hughes v. Talen Energy Marketing, LLC, 578 U.S. 150 (2016).

Maryland had established a mechanism under which a selected generator would receive a guaranteed payment linked to wholesale electricity-market prices.

The Supreme Court held that the Maryland arrangement was pre-empted because it effectively set a wholesale electricity rate that interfered with the federally regulated wholesale market.

Importance for renewable pricing

The case demonstrates an important principle:

State-level renewable-support mechanisms cannot necessarily be designed in a manner that impermissibly interferes with federally regulated wholesale electricity markets.

This becomes particularly significant when renewable support schemes attempt to guarantee revenues independently of wholesale market prices.

17. EPSA v. Star

In Energy Power Supply Association v. Star, 592 U.S. 414 (2021), the U.S. Supreme Court considered the Federal Energy Regulatory Commission's authority concerning demand-response participation in wholesale electricity markets.

The case is relevant because modern renewable integration requires coordination between:

generation;

demand response;

storage; and

wholesale pricing.

The judgment illustrates the importance of federal regulatory authority over wholesale-market participation and pricing structures.

18. EU Legal and Regulatory Context

The European Union has progressively moved toward market-based renewable integration.

The Internal Electricity Market framework emphasises:

market participation;

non-discriminatory access;

balancing responsibility;

consumer participation;

demand response; and

integration of renewable electricity into competitive markets.

The EU approach increasingly seeks to avoid treating renewable generators as permanently outside ordinary market mechanisms.

Instead, renewable generation is integrated into electricity markets while additional support mechanisms address investment and policy objectives.

19. European Court of Justice and Renewable Support

EU litigation concerning renewable-energy support has repeatedly addressed the relationship between national renewable-support schemes and EU internal-market principles.

A significant example is:

Ålands Vindkraft AB v Energimyndigheten, Case C-573/12

The Court of Justice considered Sweden's renewable-electricity certificate system.

The Court accepted that national renewable-support mechanisms could pursue legitimate environmental objectives even where they had implications for electricity imported from other Member States.

Importance

The case demonstrates the legal tension between:

national renewable-energy support

and

cross-border electricity-market integration.

This is directly relevant to pricing because renewable certificates can alter the economic value of electricity independently of its wholesale market price.

20. Indian Regulatory Framework

India's framework is particularly important because renewable penetration has increased substantially.

The principal legal foundation includes:

Electricity Act, 2003

Important provisions include:

Section 61 — tariff principles;

Section 62 — determination of tariff;

Section 63 — tariff adoption through competitive bidding;

Section 86(1)(e) — promotion of cogeneration and electricity from renewable sources.

The statutory framework allows electricity regulators to develop renewable-support mechanisms while maintaining tariff regulation.

Central Electricity Regulatory Commission

CERC regulations concerning:

renewable-energy tariff;

grid connectivity;

forecasting and scheduling;

deviation settlement;

ancillary services; and

power markets

all influence the effective price of intermittent electricity.

21. Legal Principles Governing Pricing

Several principles emerge from comparative energy law.

1. Cost Reflectivity

Prices should reflect relevant system costs where legally appropriate.

2. Non-Discrimination

Renewable generators should not be subjected to discriminatory market rules merely because their electricity is variable.

3. Polluter-Pays Principle

Where environmental costs are internalised, fossil-fuel generation may face carbon-related costs that alter relative electricity prices.

4. Regulatory Certainty

Investors require predictable pricing and support mechanisms.

5. Market Compatibility

Renewable support should be designed consistently with wholesale-market rules.

6. Consumer Protection

The cost of renewable support should remain transparent and legally justified.

7. Grid Reliability

Pricing must provide adequate incentives for balancing resources and system flexibility.

22. Future Legal Developments

Future electricity-pricing systems are likely to integrate:

dynamic electricity tariffs;

five-minute or sub-hourly settlement;

battery-storage participation;

renewable forecasting obligations;

demand-response markets;

locational pricing;

carbon pricing;

flexibility markets;

capacity mechanisms;

hybrid renewable-storage PPAs; and

automated real-time pricing.

The legal challenge will be to determine how much market risk should be transferred to renewable generators and how much should remain socialised through network tariffs or public support mechanisms.

23. Conclusion

Integration of intermittent generation into electricity-pricing models represents a fundamental transformation of energy law. Wind and solar generation have low marginal costs but create variability, forecasting uncertainty, congestion and balancing requirements. Consequently, a pricing system designed exclusively around conventional dispatchable generation may not adequately reflect the economics of a renewable-heavy electricity system.

Modern legal frameworks increasingly combine market-based pricing with targeted renewable support. Feed-in tariffs and CfDs provide investment certainty, while real-time pricing, locational pricing, balancing mechanisms and storage markets help integrate renewable electricity efficiently.

The case law demonstrates that renewable pricing cannot be considered solely as an economic issue. It is also a question of statutory authority, contractual certainty, market jurisdiction, regulatory fairness and energy-policy objectives. Cases such as Energy Watchdog, Hughes v. Talen Energy, EPSA v. Star, and Ålands Vindkraft illustrate different dimensions of this legal problem.

Ultimately, the central regulatory task is to design prices that simultaneously recognise the low marginal cost and environmental value of renewable generation while ensuring that the electricity system has sufficient flexibility, transmission capacity, balancing resources and investment incentives to remain reliable.