Large Scale Wind Power Investments Impact on Wholesale Electricity - - PowerPoint PPT Presentation

Ömer Karaduman MIT Economics, Stanford Bits & Watts Contact: omerk@mit.edu https://www.dropbox.com/s/ho5m3878mnzcztf/WoodNov10_karaduman.mp4?dl=0

Large Scale Wind Power Investment’s Impact on Wholesale Electricity Market

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Introduction

Producing clean electricity is important for decarbonization, accounts for 1/4 of overall CO2 emissions in the US (EIA 2016) Renewables are key for the power system transition

• Emission free
• Not dispatchable, intermittent
• High installment, almost-zero marginal cost

Objective

Impact of Large Scale Renewable Generation on Electricity Markets? – Emissions – Revenue of existing generators (Retirement) – Revenue of the new investment (Entry) – Market Power

Methods

I build a structural equilibrium framework to quantify a hypothetical large scale renewable generation’s impact on a wholesale electricity market in short-run – endogenize the price impact by allowing incumbent firms’ response – calculate supply function equilibrium (SFE) I compute a SFE using estimated best responses to observed variation in demand level Applied to South Australia, where wind penetration level is around 50%

Results for Wind Generation in South Australia

• Marginal analysis’s bias increases as the size of the investment increases
• Lots of curtailment, wind cannot replace all emissions by itself
• Trade does the heavy lifting for the overall emission impact
• The revenue impact shifts from low-cost inflexible generators to high-cost flexible

generators, as the capacity of wind power increases

• The revenue impact is the highest on existing renewable generation

Conclusions

• A model to quantify large-scale renewables investment’s impact in

wholesale electricity market, by endogenizing the price effect

• Offset patterns and the price impact differ considerably as wind

penetration level is changing

Future work

Other ways to use the framework

– Solar PV – EV – Demand Participation – Storage (Karaduman JMP 2019) – Modeling the long-run transition

• Selection/Entry of projects based on subsidy structure
• Retirement based on lost revenue
• Implication on reliability/resilience, storage need

Acknowledgments

I am deeply grateful to my advisors Nikhil Agarwal, Nancy Rose, Paul Joskow, and Jing Li for their guidance and support. ExxonMobil-MIT Energy fellowship provided valuable support.