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The Long-term Impact of Wind Power on Electricity Prices and Generating Capacity

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Author Info

  • Richard Green
  • Nicholas Vasilakos

Abstract

This paper uses a market equilibrium model to calculate how the mix of generating capacity would change if large amounts of intermittent renewables are built in Great Britain, and what this means for operating patterns and the distribution of prices over time. If generators bid their marginal costs, we find that the changes to the capacity mix are much greater than the changes to the pattern of prices. Thermal capacity falls only slightly in response to the extra wind capacity, and there is a shift towards power stations with higher variable costs (but lower fixed costs). The changes to the pattern of prices, once capacity has adjusted, are relatively small. In an oligopolistic setting, strategic generators will choose lower levels of capacity. If wind output does not receive the market price, then mark-ups on thermal generation will be lower in a system with large amount of wind power.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/11-09.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 11-09.

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Length: 23 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:bir:birmec:11-09

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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; Wind Generation; Intermittent Output; Capacity Mix;

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References

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  1. 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. Richard Green & Nicholas Vasilakos, 2010. "The Economics of Offshire Wind," Discussion Papers 10-20, Department of Economics, University of Birmingham.
  2. Lion Hirth, 2013. "The Optimal Share of Variable Renewables. How the Variability of Wind and Solar Power Affects their Welfare-optimal Deployment," Working Papers 2013.90, Fondazione Eni Enrico Mattei.
  3. Lion Hirth, 2012. "The Market Value of Variable Renewables," Working Papers 2012.15, Fondazione Eni Enrico Mattei.
  4. Lion Hirth & Falko Ueckerdt, 2012. "Redistribution Effects of Energy and Climate Policy: The Electricity Market," Working Papers 2012.82, Fondazione Eni Enrico Mattei.
  5. Finon, Dominique & Cepeda, Mauricio, 2013. "How to correct long-term system externality of large scale windpower development by a capacity mechanism?," Economics Papers from University Paris Dauphine 123456789/13149, Paris Dauphine University.
  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. 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.
  8. 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.
  9. De Jonghe, C. & Hobbs, B. F. & Belmans, R., 2011. "Integrating short-term demand response into long-term investment planning," Cambridge Working Papers in Economics 1132, Faculty of Economics, University of Cambridge.

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