Gone with the Wind? Electricity Market Prices and Incentives to Invest in Thermal Power Plants under Increasing Wind Energy Supply

18 Pages Posted: 13 Jul 2009

See all articles by Thure Traber

Thure Traber

Technical Univeristy of Denmark

Claudia Kemfert

DIW Deutsches Institut für Wirtschaftsforschung; HSoG

Date Written: January 2009

Abstract

The increased wind energy supplied to many electricity markets around the world has to be balanced by reliable back up units or other complementary measures when wind conditions are low. At the same time wind energy impacts both, the utilization of thermal power plants and the market prices. While the market prices tend to decrease, the impact on the utilization of different plant types is at the outset unclear. To analyze the incentives to invest in thermal power plants under increased wind energy supply, we develop a computational model which includes start-up restrictions and costs and apply it to the German case. We find that due to current wind supply the market prices are reduced by more than five percent, and the incentives to invest in natural gas fired units are largely decreased. An increased wind supply erodes their attractiveness further. Consequently, a gap between the need for and the incentive to provide exibility can be 'expected'.

Keywords: Electricity market modeling, start-up costs, wind energy, oligopoly, Germany

JEL Classification: C63, L13, L94, Q42

Suggested Citation

Traber, Thure and Kemfert, Claudia, Gone with the Wind? Electricity Market Prices and Incentives to Invest in Thermal Power Plants under Increasing Wind Energy Supply (January 2009). DIW Berlin Discussion Paper No. 852. Available at SSRN: https://ssrn.com/abstract=1430905 or http://dx.doi.org/10.2139/ssrn.1430905

Thure Traber (Contact Author)

Technical Univeristy of Denmark ( email )

Anker Engelundsvej 1
Copenhagen, 2800
Denmark

Claudia Kemfert

DIW Deutsches Institut für Wirtschaftsforschung ( email )

Mohrenstraße 58
Berlin, 10117
Germany

HSoG ( email )

Friedrichstraße 180
Berlin, 10117
Germany

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