Estimating the impact of wind generation and wind forecast errors on energy prices and costs in Ireland

This paper studies the impact of wind generation on system costs and prices in Ireland. The need to mitigate climate change, achieve renewables energy targets, and use renewable sources of energy means that many countries are considering greater levels of wind generation in their power generation mix. The overall impact of wind generation on system costs and performance has only been studied recently, and often with limited actual data from power systems with increased wind penetration. The paper uses a unique dataset of half-hourly system demand, generation, wind forecast generation, and actual wind generation, along with Irish system marginal price (SMP) data from 2008 to autumn 2012. An econometric time-series model of SMP as a function of forecast and realized demand and wind generation is formed. The costs of balancing and system constraints are included in the cost of ‘uplift’, and thus the total cost of a variety of factors is included in our estimates for Ireland. Our results suggest that each 1% increase in wind generation reduces SMP in Ireland by about 0.06%, while each 1% wind forecast error increases SMP about 0.02%. In absolute terms, though, at the mean the impact of wind forecast errors is small, or about 0.4€cent/MWh-wind generated. However, the impact per MWh forecast error is about €1.