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The impact of wind generation on the electricity spot-market price level and variance: The Texas experience

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Author Info

  • Woo, C.K.
  • Horowitz, I.
  • Moore, J.
  • Pacheco, A.

Abstract

The literature on renewable energy suggests that an increase in intermittent wind generation would reduce the spot electricity market price by displacing high fuel-cost marginal generation. Taking advantage of a large file of Texas-based 15-min data, we show that while rising wind generation does indeed tend to reduce the level of spot prices, it is also likely to enlarge the spot-price variance. The key policy implication is that increasing use of price risk management should accompany expanded deployment of wind generation.

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File URL: http://www.sciencedirect.com/science/article/pii/S0301421511002813
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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 39 (2011)
Issue (Month): 7 (July)
Pages: 3939-3944

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Handle: RePEc:eee:enepol:v:39:y:2011:i:7:p:3939-3944

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Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: Wind energy Electricity price Risk management;

References

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  1. Berry, David, 2005. "Renewable energy as a natural gas price hedge: the case of wind," Energy Policy, Elsevier, vol. 33(6), pages 799-807, April.
  2. Deng, S.J. & Oren, S.S., 2006. "Electricity derivatives and risk management," Energy, Elsevier, vol. 31(6), pages 940-953.
  3. Feldstein, Martin S, 1971. "The Error of Forecast in Econometric Models when the Forecast-Period Exogenous Variables are Stochastic," Econometrica, Econometric Society, vol. 39(1), pages 55-60, January.
  4. Woo, Chi-Keung & Karimov, Rouslan I. & Horowitz, Ira, 2004. "Managing electricity procurement cost and risk by a local distribution company," Energy Policy, Elsevier, vol. 32(5), pages 635-645, March.
  5. Klinge Jacobsen, Henrik & Zvingilaite, Erika, 2010. "Reducing the market impact of large shares of intermittent energy in Denmark," Energy Policy, Elsevier, vol. 38(7), pages 3403-3413, July.
  6. Thure Traber & Claudia Kemfert, 2009. "Gone with the Wind?: Electricity Market Prices and Incentives to Invest in Thermal Power Plants under Increasing Wind Energy Supply," Discussion Papers of DIW Berlin 852, DIW Berlin, German Institute for Economic Research.
  7. Hoogwijk, Monique & de Vries, Bert & Turkenburg, Wim, 2004. "Assessment of the global and regional geographical, technical and economic potential of onshore wind energy," Energy Economics, Elsevier, vol. 26(5), pages 889-919, September.
  8. Steggals, Will & Gross, Robert & Heptonstall, Philip, 2011. "Winds of change: How high wind penetrations will affect investment incentives in the GB electricity sector," Energy Policy, Elsevier, vol. 39(3), pages 1389-1396, March.
  9. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  10. Sioshansi, Ramteen & Hurlbut, David, 2010. "Market protocols in ERCOT and their effect on wind generation," Energy Policy, Elsevier, vol. 38(7), pages 3192-3197, July.
  11. Richard Green & Nicholas Vasilakos, 2008. "Market Behaviour with Large Amounts of Intermittent Generation," Discussion Papers 08-08, Department of Economics, University of Birmingham.
  12. Woo, Chi-Keung & Horowitz, Ira & Olson, Arne & Horii, Brian & Baskette, Carmen, 2006. "Efficient frontiers for electricity procurement by an LDC with multiple purchase options," Omega, Elsevier, vol. 34(1), pages 70-80, January.
  13. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
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Citations

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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. 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.
  3. J. Zarnikau & C. Woo & R. Baldick, 2014. "Did the introduction of a nodal market structure impact wholesale electricity prices in the Texas (ERCOT) market?," Journal of Regulatory Economics, Springer, vol. 45(2), pages 194-208, April.
  4. Alagappan, L. & Orans, R. & Woo, C.K., 2011. "What drives renewable energy development?," Energy Policy, Elsevier, vol. 39(9), pages 5099-5104, September.
  5. Zhang, Yao & Wang, Jianxue & Wang, Xifan, 2014. "Review on probabilistic forecasting of wind power generation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 32(C), pages 255-270.
  6. 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.
  7. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  8. Schaber, Katrin & Steinke, Florian & Hamacher, Thomas, 2012. "Transmission grid extensions for the integration of variable renewable energies in Europe: Who benefits where?," Energy Policy, Elsevier, vol. 43(C), pages 123-135.
  9. Forrest, Sam & MacGill, Iain, 2013. "Assessing the impact of wind generation on wholesale prices and generator dispatch in the Australian National Electricity Market," Energy Policy, Elsevier, vol. 59(C), pages 120-132.
  10. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages S159-S171.
  11. Darghouth, Naïm R. & Barbose, Galen & Wiser, Ryan H., 2014. "Customer-economics of residential photovoltaic systems (Part 1): The impact of high renewable energy penetrations on electricity bill savings with net metering," Energy Policy, Elsevier, vol. 67(C), pages 290-300.
  12. di Cosmo, Valeria & Malaguzzi Valeri, Laura, 2014. "The Incentive to Invest in Thermal Plants in the Presence of Wind Generation," Papers RB2014/2/1, Economic and Social Research Institute (ESRI).
  13. Woo, C.K. & Li, R. & Shiu, A. & Horowitz, I., 2013. "Residential winter kWh responsiveness under optional time-varying pricing in British Columbia," Applied Energy, Elsevier, vol. 108(C), pages 288-297.
  14. Elberg, Christina & Hagspiel, Simeon, 2013. "Spatial Dependencies of Wind Power and Interrelations with Spot Price Dynamics," EWI Working Papers 2013-11, Energiewirtschaftliches Institut an der Universitaet zu Koeln.

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