Wind, Storage, Interconnection and the Cost of Electricity Generation

41 Pages Posted: 3 Mar 2017

See all articles by Valeria Di Cosmo

Valeria Di Cosmo

Economic and Social Research Institute (ESRI); Fondazione Eni Enrico Mattei (FEEM)

Laura Malaguzzi Valeri

Economic and Social Research Institute (ESRI)

Date Written: March 3, 2017

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.

Keywords: Wind Generation, Constraints, Storage, Interconnection, Subsidies

JEL Classification: L94, Q42

Suggested Citation

Di Cosmo, Valeria and Valeri, Laura Malaguzzi, Wind, Storage, Interconnection and the Cost of Electricity Generation (March 3, 2017). FEEM Working Paper No. 10.2017. Available at SSRN: https://ssrn.com/abstract=2926875 or http://dx.doi.org/10.2139/ssrn.2926875

Valeria Di Cosmo (Contact Author)

Economic and Social Research Institute (ESRI) ( email )

Whitaker square Sir john Rogerson's Quay
Dublin 2
Dublin
Ireland

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Laura Malaguzzi Valeri

Economic and Social Research Institute (ESRI)

Whitaker square Sir john Rogerson's Quay
Dublin 2
Dublin
Ireland

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