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The Hidden System Costs of Wind Generation in a Deregulated Electricity Market

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  • Timothy D. Mount, Surin Maneevitjit, Alberto J. Lamadrid, Ray D. Zimmerman, and Robert J. Thomas

Abstract

Earlier research has shown that adding wind generation to a network can lower the total annual operating cost by displacing conventional generation. At the same time, the variability of wind generation and the need for higher levels of reserve generating capacity to maintain reliability standards impose additional costs on the system that should not be ignored. The important implication for regulators is that the capacity payments ["missing money"] for each MW of peak system load are now much higher. Hence, the economic benefits of reducing the peak system load using storage or controllable demand will be higher with high penetrations of wind generation. These potential benefits are illustrated in a case study using a test network and a security constrained Optimal Power Flow (OPF) with endogenous reserves (SuperOPF). The results show that the benefits are very sensitive to 1) how much of the inherent variability of wind generation is mitigated, and 2) how the missing money is determined (e.g. comparing regulation with deregulation).

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Bibliographic Info

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

Volume (Year): Volume 33 (2012)
Issue (Month): Number 1 ()
Pages:

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Handle: RePEc:aen:journl:33-1-a06

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Cited by:
  1. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-41, May.
  2. Lamadrid, Alberto J. & Mount, Tim, 2012. "Ancillary services in systems with high penetrations of renewable energy sources, the case of ramping," Energy Economics, Elsevier, vol. 34(6), pages 1959-1971.
  3. 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.
  4. Lion Hirth, 2012. "The Market Value of Variable Renewables," Working Papers 2012.15, Fondazione Eni Enrico Mattei.
  5. Narbel, Patrick A., 2014. "Rethinking how to support intermittent renewables," Discussion Papers 2014/17, Department of Business and Management Science, Norwegian School of Economics.
  6. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
  7. 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.
  8. Peeter Pikk & Marko Viiding, 2013. "The dangers of marginal cost based electricity pricing," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 13(1), pages 49-62, July.

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