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Spatial Effects of Wind Generation and Its Implication for Wind Farm Investment Decisions in New Zealand

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Spill-over effects on electricity nodal prices associated with increased wind generation have not been examined in the literature. To examine these effects, we use spatial econometric models to estimate the direct and indirect effects of wind generation on nodal wholesale electricity prices. Spatial econometric models allow us to provide quantitative estimates of spill-over magnitudes and statistical tests for significance. Results show negative and significant effects are associated with increases in wind penetration, and the effect is stronger during peak hours and weaker during off-peak hours. Simulation results demonstrate net savings of NZ$8 million per MW of additional wind capacity installed at the CNI2 wind site. The findings provide valuable information on the evaluation of wind farm development in terms of site location, wholesale prices, and financial feasibility. Our approach also contributes to forecasting location specific wholesale electricity prices, and provides a better understanding of the implications of locating wind sites.

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Keywords: Merit-order effect, Spatial econometrics, Wind penetration, Nodal price, Wind investment

DOI: 10.5547/01956574.41.2.lwen

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Published in Volume 41, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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