THE HIDDEN SYSTEM COSTS OF WIND GENERATION IN A DEREGULATED ELECTRICITY MARKET

Earlier research has shown that adding wind capacity to a network can lower the total annual operating cost of meeting a given pattern of loads 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 eachMW of peak system load is now much higher. Hence, the economic benefits to a network of using storage, controllable load and other mechanisms to reduce the peak system load 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 OPF with endogenous reserves (SuperOPF). The capabilities of the SuperOPF provide a consistent economic framework for evaluating Operating Reliability in real-time markets and System Adequacy for planning purposes. The scenarios considered make it possible to determine 1) the amount of conventional generating capacity needed to meet the peak system load and maintain System Adequacy, and the amount of wind dispatched, 2) total payments by customers in the Wholesale Market, and the amount of missing money paid to generators to maintain their Financial Adequacy, 3) changes in the congestion rents for transmission that are collected by the system operator, and finally, 4) the total annual system costs paid by customers directly in the Wholesale Market and, indirectly, as missing money. The results show that the benefits (i.e. the reduction in the total annual system costs) from making an investment in wind capacity and/of upgrading a tie line are very sensitive to 1) how much of the inherent variability of wind generation is mitigated, and 2) how the missing money paid to conventional generators is determined (e.g. comparing a regulated market with a deregulated market).