Wind, Storage, Interconnection and the Cost of Electricity Generation

Abstract

We evaluate how increasing wind generation affects wholesale electricity prices, balancing payments and the cost of subsidies using the Irish Single Electricity Market (SEM) as a test system, with hourly data from 1 January 2008 to 28 August 2012. We model the spot market using a system of seemingly unrelated regressions (SUR) where the regressions are the 24 hours of the day. Wind has a negative impact on the system marginal price, with every MWh increase in wind generation (equal to about 0.2% of the average wind generation in our sample) leading to a decrease of the system marginal price of €0.018/MWh, or about 0.3% of its average value. We use time series models to analyse the balancing market and show that wind generation increases balancing payments, as do the forecast errors of demand and wind. Every MWh of additional wind generation is associated with an increase in constraint payments of €3.2, or about 0.01%. Lack of storage increases the impact of wind on balancing payments whereas the lack of interconnection has no effect. Overall, wind decreases costs through its effect on the electricity price more than it increases constraint payments, even when storage is on outage. The effect of wind remains positive after including the cost of subsidies given to wind generation.

Global Assessment of the Merit-Order Effect and Revenue Cannibalisation for Variable Renewable Energy

“…The methodology has frequently been applied to data from Germany, for example by Ketterer 22 , Paschen 23 , Zipp 10 , Benhmad and Percebois 24 and de Lagarde and Lantz 19 . Similar results confirming the merit-order effect are derived from historical data for other European countries, such as Denmark 25 , Spain 8,14,26 , Portugal 27 , Ireland 28,29 , Italy 30 , Great Britain 31 and the Baltic states 32 . Outside of Europe, the analysis has been applied to e.g.…”

“…Regressions were based on the levels of the regression variables rather than their first differences. In a literature survey of 12 recent studies using OLS to study the merit-order effect, 8 studies used absolute values 11,13,[26][27][28][55][56][57] , 3 used first differences [8][9][10] , and 1 tested both 38 . To correct for seasonal, diurnal and inter-annual influences on electricity prices, we followed Wooldridge 58 and included time dummies in our model that represent the hours of the day, days of the week, months of the year and years in the sample.…”

Solar and wind grid system value in the United States: The effect of transmission congestion, generation profiles, and curtailment

“…The mechanics of VRE value decline are complex, producing varying results across regions and time periods. This is evidenced by the variety of results found in empirical studies from Europe, [13][14][15][16][17][18][19][20][21][22][23][24][25] Australia, 26 and the United States. [27][28][29][30][31] These studies mostly focus on a concept related to VRE value decline, the ''merit order effect,'' which quantifies the deflation of overall average wholesale power prices due to VRE output.…”

Impact of the Nature of Energy Management and Responses to Policies Regarding Solar and Wind Pricing: A Qualitative Study of the Australian Electricity Markets

“…Therefore, their inclusion in an electricity system results in costs associated with guaranteeing the backup capacity and maintaining conventional energy sources in ready-to-use states. Additionally, solar and wind power have negligible marginal costs and insufficient priority of dispatch to satisfy demand, which also poses a challenge for electricity markets (Di Cosmo and Valeri, 2018). Thus, the second research question concerned the likely future challenges that the Australian electricity markets will face due to the influence of solar and wind energy.…”