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

ESRC Centre for Competition Policy Working Paper Series

25 Pages Posted: 27 May 2011

See all articles by Richard Green

Richard Green

Imperial College Business School

Nicholas V. Vasilakos

University of Birmingham

Date Written: March 2011

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 amounts of wind power.

Keywords: Electricity Markets, Wind Generation, Intermittent output, Capacity

JEL Classification: L94, Q42

Suggested Citation

Green, Richard and Vasilakos, Nicholas V., The Long-Term Impact of Wind Power on Electricity Prices and Generating Power (March 2011). ESRC Centre for Competition Policy Working Paper Series. Available at SSRN: https://ssrn.com/abstract=1851311 or http://dx.doi.org/10.2139/ssrn.1851311

Richard Green (Contact Author)

Imperial College Business School ( email )

Tanaka Building
South Kensington
London, London SW7 2AZ
United Kingdom

Nicholas V. Vasilakos

University of Birmingham ( email )

Edgbaston, VT Birmingham B15 2TT
United Kingdom

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