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Contracting for wind generation

Author

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  • Newbery, D.

Abstract

The UK Government proposes offering long-term Feed-in-Tariffs (FiTs) to low-carbon generation to reduce risk and encourage new entrants. Their preference is for a Contract-for-Difference (CfD) or a premium FiT (pFiT) for all generation regardless of type. I argue that neither is suitable for on-shore wind, where a fixed FiT appears less risky. The estimated extra trading and balancing costs of a CfD for on-shore wind might be £70 million/yr by 2020, while the cost of the increased risk incurred by a pFiT might add another £180 m/yr. If similar savings were made to projected off-shore wind investments the savings might be three times as high.

Suggested Citation

  • Newbery, D., 2011. "Contracting for wind generation," Cambridge Working Papers in Economics 1143, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1143
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    References listed on IDEAS

    as
    1. Green, Richard & Vasilakos, Nicholas, 2010. "Market behaviour with large amounts of intermittent generation," Energy Policy, Elsevier, vol. 38(7), pages 3211-3220, July.
    2. Frieder Borggrefe & Karsten Neuhoff, 2011. "Balancing and Intraday Market Design: Options for Wind Integration," Discussion Papers of DIW Berlin 1162, DIW Berlin, German Institute for Economic Research.
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    Cited by:

    1. David M. Newbery, 2012. "Reforming Competitive Electricity Markets to Meet Environmental Targets," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    2. Higgins, P. & Foley, A.M. & Douglas, R. & Li, K., 2014. "Impact of offshore wind power forecast error in a carbon constraint electricity market," Energy, Elsevier, vol. 76(C), pages 187-197.
    3. Claire M. Weiller & Michael G. Pollitt, 2013. "Platform Markets and Energy Services," Cambridge Working Papers in Economics 1361, Faculty of Economics, University of Cambridge.
    4. Newbery, David M., 2016. "Towards a green energy economy? The EU Energy Union’s transition to a low-carbon zero subsidy electricity system – Lessons from the UK’s Electricity Market Reform," Applied Energy, Elsevier, vol. 179(C), pages 1321-1330.
    5. Newbery, David, 2016. "Missing money and missing markets: Reliability, capacity auctions and interconnectors," Energy Policy, Elsevier, vol. 94(C), pages 401-410.
    6. G. Cornelis van Kooten, 2015. "All you want to know about the Economics of Wind Power," Working Papers 2015-07, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    7. Toke, David, 2011. "UK Electricity Market Reform—revolution or much ado about nothing?," Energy Policy, Elsevier, vol. 39(12), pages 7609-7611.
    8. Laura-Lucia Richter & Michael G. Pollitt, 2016. "Which Smart Electricity Service Contracts Will Consumers Accept? The demand for compensation in a platform market," Cambridge Working Papers in Economics 1632, Faculty of Economics, University of Cambridge.
    9. Balta-Ozkan, Nazmiye & Yildirim, Julide & Connor, Peter M., 2015. "Regional distribution of photovoltaic deployment in the UK and its determinants: A spatial econometric approach," Energy Economics, Elsevier, vol. 51(C), pages 417-429.

    More about this item

    Keywords

    Wind power; long-term contracts; balancing costs;

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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