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Market Behaviour with Large Amounts of Intermittent Generation

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  • Richard Green
  • Nicholas Vasilakos

Abstract

This paper evaluates the impact of intermittent wind generation on hourly equilibrium prices and output, using data on expected wind generation capacity and demand for 2020. Hourly wind data for the period 1994-2005 are used to obtain wind output generation profiles for thirty regions (onshore and offshore) across Great Britain. Matching the wind profiles for each month to the actual hourly demand (scaled to possible 2020 values), we find that the volatility of prices will increase, and that there is significant year-to-year variation in generators’ profits. In the presence of significant market power (the equivalent of two symmetric firms owning fossil-fuelled capacity, rather than six), the level of prices more than doubled, and their volatility increased. Our results lend support to the theoretical findings of Twomey and Neuhoff (2005), showing that the impact of market power should be expected to raise revenues less for wind than for thermal generators.

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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 08-08.

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Length: 20 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:bir:birmec:08-08

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Related research

Keywords: Electricity markets; Intermittent Output; Imperfect Competition; Wind generation; Generation Mix;

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References

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  1. Joanne Evans & Richard Green, 2003. "Why did British electricity prices fall after 1998?," Working Papers 0307, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. Müsgens, F. & Neuhoff, K., 2006. "Modelling Dynamic Constraints in Electricity Markets and the Costs of Uncertain Wind Output," Cambridge Working Papers in Economics 0610, Faculty of Economics, University of Cambridge.
  3. Richard Green, 2008. "Carbon Tax or Carbon Permits: The Impact on Generators Risks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-90.
  4. Sinden, Graham, 2007. "Characteristics of the UK wind resource: Long-term patterns and relationship to electricity demand," Energy Policy, Elsevier, vol. 35(1), pages 112-127, January.
  5. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  6. Sáenz de Miera, Gonzalo & del Ri­o González, Pablo & Vizcaino, Ignacio, 2008. "Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain," Energy Policy, Elsevier, vol. 36(9), pages 3345-3359, September.
  7. 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.
  8. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  9. Richard J. Green, 2008. "Electricity Wholesale Markets: Designs Now and in a Low-carbon Future," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 95-124.
  10. Twomey, P. & Neuhoff, K., 2005. "Market Power and Technological Bias: The Case of Electricity Generation," Cambridge Working Papers in Economics 0532, Faculty of Economics, University of Cambridge.
  11. Oswald, James & Raine, Mike & Ashraf-Ball, Hezlin, 2008. "Will British weather provide reliable electricity?," Energy Policy, Elsevier, vol. 36(8), pages 3202-3215, August.
  12. Holttinen, H., 2005. "Optimal electricity market for wind power," Energy Policy, Elsevier, vol. 33(16), pages 2052-2063, November.
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Citations

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Cited by:
  1. 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.
  2. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
  3. Kamiński, Jacek, 2014. "A blocked takeover in the Polish power sector: A model-based analysis," Energy Policy, Elsevier, vol. 66(C), pages 42-52.
  4. Green, Richard & Vasilakos, Nicholas, 2011. "The economics of offshore wind," Energy Policy, Elsevier, vol. 39(2), pages 496-502, February.
  5. Green, Richard & Hu, Helen & Vasilakos, Nicholas, 2011. "Turning the wind into hydrogen: The long-run impact on electricity prices and generating capacity," Energy Policy, Elsevier, vol. 39(7), pages 3992-3998, July.
  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. Dallinger, David, 2013. "The contribution of vehicle-to-grid to balance fluctuating generation: Comparing different battery ageing approaches," Working Papers "Sustainability and Innovation" S9/2013, Fraunhofer Institute for Systems and Innovation Research (ISI).
  8. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  9. Grünewald, Philipp & Cockerill, Tim & Contestabile, Marcello & Pearson, Peter, 2011. "The role of large scale storage in a GB low carbon energy future: Issues and policy challenges," Energy Policy, Elsevier, vol. 39(9), pages 4807-4815, September.
  10. 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.
  11. Green, Richard, 2010. "Are the British electricity trading and transmission arrangements future-proof?," Utilities Policy, Elsevier, vol. 18(4), pages 186-194, December.
  12. Godby, Robert & Torell, Gregory L. & Coupal, Roger, 2014. "Estimating the value of additional wind and transmission capacity in the rocky mountain west," Resource and Energy Economics, Elsevier, vol. 36(1), pages 22-48.
  13. Lilian de Menezes & Melanie A. Houllier, 2013. "Modelling Germany´s Energy Transition and its Potential Effect on European Electricity Spot Markets," EcoMod2013 5395, EcoMod.
  14. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l564igg8g is not listed on IDEAS
  15. Woo, C.K. & Horowitz, I. & Moore, J. & Pacheco, A., 2011. "The impact of wind generation on the electricity spot-market price level and variance: The Texas experience," Energy Policy, Elsevier, vol. 39(7), pages 3939-3944, July.
  16. Narbel, Patrick A., 2014. "Rethinking how to support intermittent renewables," Discussion Papers 2014/17, Department of Business and Management Science, Norwegian School of Economics.
  17. 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.
  18. 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.
  19. Simoglou, Christos K. & Biskas, Pandelis N. & Vagropoulos, Stylianos I. & Bakirtzis, Anastasios G., 2014. "Electricity market models and RES integration: The Greek case," Energy Policy, Elsevier, vol. 67(C), pages 531-542.
  20. Böckers, Veit & Giessing, Leonie & Rösch, Jürgen, 2013. "The green game changer: An empirical assessment of the effects of wind and solar power on the merit order," DICE Discussion Papers 104, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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