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Market Behaviour with Large Amounts of Intermittent Generation

  • Richard Green
  • Nicholas Vasilakos

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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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
Contact details of provider: Postal: Edgbaston, Birmingham, B15 2TT
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  1. 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.
  2. 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.
  3. Holttinen, H., 2005. "Optimal electricity market for wind power," Energy Policy, Elsevier, vol. 33(16), pages 2052-2063, November.
  4. Joanne Evans and Richard Green, 2005. "Why Did British Electricity Prices Fall after 1998?," Discussion Papers 05-13, Department of Economics, University of Birmingham.
  5. 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.
  6. 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.
  7. 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.
  8. Richard Green, 2007. "Carbon Tax or Carbon Permits: The Impact on Generators' Risks," Discussion Papers 07-02, Department of Economics, University of Birmingham.
  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. Oswald, James & Raine, Mike & Ashraf-Ball, Hezlin, 2008. "Will British weather provide reliable electricity?," Energy Policy, Elsevier, vol. 36(8), pages 3202-3215, August.
  11. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  12. 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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