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

Author

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  • 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.

Suggested Citation

  • Richard Green & Nicholas Vasilakos, 2011. "The Long-term Impact of Wind Power on Electricity Prices and Generating Capacity," Discussion Papers 11-09, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:11-09
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    File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/11-09.pdf
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    References listed on IDEAS

    as
    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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    More about this item

    Keywords

    Electricity Markets; Wind Generation; Intermittent Output; Capacity Mix;

    JEL classification:

    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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