Essays On Wind Energy Integration And The Costs Of Intermittency

Abstract

This paper consists of three chapters. In chapter 1, I analyze the costs of intermittency in European whole-sale power markets. Intermittent dispatch is a barrier to the widespread adoption of renewables. I revisit this issue from a sufficient statistic perspective by observing that in a very general environment, the cost of intermittency can be summarized in the degree of covariance between production and marginal value of power. If spot prices are market-determined, this covariance can be measured using daily price and pro- duction data. I document that the covariance becomes increasing negative as wind penetration increases within European bidding zones, which does not occur for dispatchable forms of power. I then show in a simple framework that the equilibrium level of wind penetration can be summarized with the elasticity of demand, the cost differential between wind and other forms of power, and the variance of wind supply. Applying this to wind generation data across bidding zones, I demonstrate that integration among regions allows for substantial increases in potential wind penetration by reducing the variance of supply. In chapter 2, I analyze the relationship between wind energy and transmission congestion in the Mid- west wholesale power market. Transmission constraints and congestion costs are a significant barrier to variable renewable penetration. I use state-level wind speed observations to analyze the relationship be- tween wind generation and the congestion and energy components of wholesale energy prices in the mid- west. In states with high wind penetration such as Minnesota and Iowa, negative congestion charges during periods of high wind generation are on average 40% and 50% respectively of the marginal energy charge, which is a significant effect on wholesale prices and the revenues of wind producers. In states without high wind penetration, congestion charges are on average much lower in magnitude and have no relation to wind speed. Because state level production is not published in the wholesale market, this is a novel approach for looking at the relationship between generation and prices at the state level. I additionally look at the frequency of negative prices across hourly observations at the nodal level within each MISO state, finding that Iowa and Minnesota see not infrequent cases of negative prices, particularly in the real-time market (12% and 9%, respectively). Isolating for just the hours when wind speeds are in the top quartile, the frequencies rise to 21% and 13%. Finally, I show that the frequency with which negative price observations exceeds tax credits and therefore generation would be unprofitable for wind producers is uncommon. In chapter 3, I introduce a simple theoretical framework for modeling wind energy as a random variable and analyze how intermittent supply is balanced with dispatchable sources of power like natural gas to meet demand. I extend the model to the application of transmission between two countries and show that as transmission increases in the long run, the amount of wind farms increases as well. In the short run, when the number of wind farms is fixed, increased transmission may boost natural gas usage under certain conditions.