High wind Penetration in an Agent-Based Model of the Electricity Market. The Case of Italy

In this paper, we build a realistic large-scale agent-based model of the Italian electricity market and run simulations to investigate how a significant increase in wind capacity can affect electricity prices at the national level when the wind resource is geographically concentrated, as in the case of Italy. The simulator implements both cost-based and oligopoly models in which electricity companies learn to bid strategically. We compare a scenario based on the 2010 wind supply and a scenario based on the maximum potential wind capacity as estimated in technical reports. Results confirm the beneficial effect of low-cost renewable energy in reducing average market prices, but simulated power flows in the grid suggest that congestion in the electricity network induced by high wind penetration creates market power opportunities that can offset the price reduction effects.