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Increasing the Value of Wind with Energy Storage

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  • Ramteen Sioshansi
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    Abstract

    One economic disincentive to investing in wind generation is that the average market value of wind energy can be lower than that of other generation technologies. This is driven by the exercise of market power by other generators and the fact that the ability of these generators to exercise market power is inversely related to real-time wind availability. We examine the use of energy storage to mitigate this price suppression by shifting wind generation from periods with low prices to periods with higher prices. We show that storage can significantly increase the value of wind generation but the currently high capital cost of storage technologies cannot be justified on the basis of this use. Moreover, we demonstrate that this use of storage can reduce consumer surplus, the profits of other non-wind generators, and social welfare. We also examine the sensitivity of these effects to a number of parameters including storage size, storage efficiency, ownership structure, and market competitiveness--showing that a more-competitive market can make storage significantly more valuable to a wind generator.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 32 (2011)
    Issue (Month): Number 2 ()
    Pages: 1-30

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    Handle: RePEc:aen:journl:2011v32-02-a01

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    Cited by:
    1. Zafirakis, Dimitrios & Chalvatzis, Konstantinos J. & Baiocchi, Giovanni & Daskalakis, George, 2013. "Modeling of financial incentives for investments in energy storage systems that promote the large-scale integration of wind energy," Applied Energy, Elsevier, vol. 105(C), pages 138-154.
    2. Nyamdash, Batsaikhan & Denny, Eleanor, 2011. "The impact of electricity storage on wholesale electricity prices," MPRA Paper 34941, University Library of Munich, Germany.
    3. Daniel T. Kaffine & Brannin J. McBee & Jozef Lieskovsky, 2012. "Emissions savings from wind power generation: Evidence from Texas, California and the Upper Midwest," Working Papers 2012-03, Colorado School of Mines, Division of Economics and Business.
    4. Lion Hirth, 2012. "The Market Value of Variable Renewables," Working Papers 2012.15, Fondazione Eni Enrico Mattei.
    5. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
    6. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l564igg8g is not listed on IDEAS
    7. Sioshansi, Ramteen, 2014. "When energy storage reduces social welfare," Energy Economics, Elsevier, vol. 41(C), pages 106-116.
    8. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
    9. Stefano Cló & Gaetano D’Adamo, 2014. "The Impact of Solar Penetration on Solar and Gas Market Value: an application to the Italian Power Market," Working Papers 1405, Department of Applied Economics II, Universidad de Valencia.

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