Market behaviour with large amounts of intermittent generation

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 1993–2005 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. Above-average wind speeds lead to below-average prices, but annual revenues for British wind generators (producing more in the winter) are almost as great as for base-load generators. 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. However, wind generators’ average revenues rose by 20% less than those of base-load plant.