Market behaviour with large amounts of intermittent generation

Abstract

This paper evaluates the impact of intermittent wind generation on hourly equilibrium prices and output, using data on expected wind generation capacity and demand for 2020. Hourly wind data for the period 1994-2005 are used to obtain wind output generation profiles for thirty regions (onshore and offshore) across Great Britain. Matching the wind profiles for each month to the actual hourly demand (scaled to possible 2020 values), we find that the volatility of prices will increase, and that there is significant year-to-year variation in generators’ profits. In the presence of significant market power (the equivalent of two symmetric firms owning fossil-fuelled capacity, rather than six), the level of prices more than doubled, and their volatility increased. Our results lend support to the theoretical findings of Twomey and Neuhoff (2005), showing that the impact of market power should be expected to raise revenues less for wind than for thermal generators.