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Market Design with Centralized Wind Power Management: Handling Low-predictability in Intraday Markets

This paper evaluates the benefits for an agent managing the wind power production within a given power system to trade in the intraday electricity markets, in a context of massive penetration of intermittent renewables. Using a simple analytical model we find out that there are situations when it will be costly for this agent to adjust its positions in intraday markets. A first key factor is of course the technical flexibility of the power system: if highly flexible units provide energy at very low prices in real-time there is no point in participating into intraday markets. Besides, we identify the way wind production forecast errors evolve constitutes another essential, although less obvious, key-factor. Both the value of the standard error and the correlation between forecasts errors at different gate closures will determine the strategy of the wind power manager. Policy implications of our results are the following: low liquidity in intraday markets will be unavoidable for given sets of technical parameters, it will also be inefficient in some cases to set discrete auctions in intraday markets, and compelling players to adjust their position in intraday markets will then generate additional costs.

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JEL Codes: Q42: Alternative Energy Sources, Q40: Energy: General, C53: Forecasting Models; Simulation Methods

Keywords: Market design, Intraday markets, Wind forecasts, Large-scale renewables, Intermittency

DOI: 10.5547/01956574.35.1.6

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Published in Volume 35, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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