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The Hidden System Costs of Wind Generation in a Deregulated Electricity Market

Timothy D. Mount, Surin Maneevitjit, Alberto J. Lamadrid, Ray D. Zimmerman, and Robert J. Thomas

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-6
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Abstract:
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).Keywords: Electricity markets, Wind generation, Optimum dispatch, Endogenous reserve capacity, Missing money, Total annual system costs.



Renewable Electricity and Backup Capacities: An (Un-) Resolvable Problem?

Aaron Praktiknjo and Georg Erdmann

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.apra
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Abstract:
Public support for renewables has led to an unexpected investment momentum in Germany. A consequence is a reduction in wholesale electricity prices, the so-called merit order effect of renewables. We estimate this reduction using an econometric approach and provide a quantitative overview of the financial situation of conventional generators. Our results indicate that investments in new conventional capacities are economically unviable. With the current market design, this situation is going to impact supply security, at least in the long run. A popular approach to address this issue is the introduction of additional public support for conventional power plants. However, we believe that subsidizing renewable and conventional capacities contradicts the idea of a liberal market. We present two alternatives: State control of investments in renewables through auctions (as proposed by the European Commission), and a premium paid to representatives of the demand side (such as retailers) in dependence of their shares of renewables.



The Variation in Capacity Remunerations Requirements in European Electricity Markets

Conor Hickey, Derek Bunn, Paul Deane, Celine McInerney, and Brian Ó Gallachóir

Year: 2021
Volume: Volume 42
Number: Number 2
DOI: 10.5547/01956574.42.2.chic
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Abstract:
This paper provides the first EU wide analysis of the variation in Capacity Remuneration Requirements throughout Europe which aim to resolve the �missing money� problems in various member states. The findings of this analysis point to an asymmetric investment case for gas-fired peaking power plants throughout the EU. Under the assumptions of the European Commission Reference Scenario, pan-European power optimisation and investment models are specified for 2030. The results show that future investment in gas generators will depend on the availability of capacity payments. Capacity remuneration mechanisms can provide this �missing money,� but we show that capacity remuneration requirements vary considerably across countries. We consider and model the impacts of country specific climate policy targets, sovereign risk, capital allowances, corporate taxes and future gas network tariffs on investor returns and therefore remuneration requirements. In the context of harmonised energy trading, this raises questions of how generation adequacy should be achieved, particularly in the context of higher penetrations of renewables.



The Impact of Capacity Market Auctions on Wholesale Electricity Prices

Francisco Moraiz and Dominic Scott

Year: 2022
Volume: Volume 43
Number: Number 1
DOI: 10.5547/01956574.43.1.fmor
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Abstract:
The objective of this analysis is to shed light on the impact—on electricity prices and net costs borne by the consumer—of the introduction of the Capacity Market. The analysis uses the ‘surprise’ announcement of the introduction of a Capacity Market Early Auction to assess its impact on wholesale prices using the ‘difference-in-differences’ (did) method. Although we cannot exclude entirely the possibility of other drivers, our results suggest that the announcement of introduction of the Early Auction may have reduced the spread between peak and base prices by £0.84/MWh. This may be consistent with a reduction in wholesale revenues of about half the total value of the Capacity Market of £380 million. Our research is subject to a number of assumptions and accompanying caveats which we spell out.





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