Title: The hidden system costs of wind generation in a deregulated electricity market
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Earlier research has shown that adding wind generation to a network can lower the total annual operating cost by displacing conventional generation. At the same time, the variability of wind generation and the need for higher levels of reserve generating capacity to maintain reliability standards impose additional costs on the system that should not be ignored. The important implication for regulators is that the capacity payments ["missing money"] for each MW of peak system load are now much higher. Hence, the economic benefits of reducing the peak system load using storage or controllable demand will be higher with high penetrations of wind generation. These potential benefits are illustrated in a case study using a test network and a security constrained Optimal Power Flow (OPF) with endogenous reserves (SuperOPF). The results show that the benefits are very sensitive to 1) how much of the inherent variability of wind generation is mitigated, and 2) how the missing money is determined (e.g. comparing regulation with deregulation).

doi: 10.5547/ISSN0195-6574-EJ-Vol33-No1-6

Keywords: Electricity markets, Wind generation, Optimum dispatch, Endogenous reserve capacity, Missing money, Total annual system costs.


In a recent study initiated by the US Department of Energy (DOE 2008), the effects of increasing dependence on wind energy to 20% of the total generation of electricity by 2030 are evaluated. The study is relatively positive about this scenario and states:

Until recently, concerns had been prevalent in the electric utility sector about the difficulty and costs of dealing with the variability and uncertainty of energy production from wind plants and other weather-driven renewable technologies. But utility engineers in some parts of the United States now have extensive experience with wind plant impacts, and their analyses of these impacts have helped to reduce these concerns [...] wind's variability is being accommodated, and given optimistic assumptions, studies suggest the cost impact could be as little as the current level--10% or less of the value of the wind energy generated.

The DOE study focuses on the initial capital cost of installing the wind capacity and upgrading the transmission network and compares these costs to the lower operating costs when wind energy displaces fossil fuels. Studies for the Western US (GEEnergy 2010) state an even higher penetration of renewables without transmission expansion, given a change in the energy dispatch management. The objective of this paper is to show that there are other, hidden costs of wind power associated with the need to maintain the "Financial Adequacy" of conventional generating capacity. Since wind capacity is essentially a non-dispatchable source of energy, it may contribute relatively little capacity for meeting the reliability standard of Generation Adequacy. Nevertheless, wind generation, when it is available, is essentially free and it displaces most conventional sources of generation. As a result, the capacity factors of conventional generators are typically reduced when wind capacity is added. This happens even though the total amount of conventional capacity needed to maintain reliability may actually increase. Consequently, these conditions lead to increasing amounts of "missing money" for generators that...

Source Citation (MLA 8 th Edition)
Mount, Timothy D., et al. "The hidden system costs of wind generation in a deregulated electricity market." The Energy Journal, vol. 33, no. 1, 2012, p. 161+. Academic OneFile, Accessed 25 June 2019.

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