Selling wind power in electricity markets: The status today, the opportunities tomorrow

Abstract

California has set a target of 33% penetration from all renewable sources by 2020. Wind energy must play a key role in realizing such aggressive targets. At these deep penetration levels, integration of utility scale wind production into the electricity grid poses serious engineering and market challenges. These are due to the uncertainty, intermittency, and uncontrollability of wind power. Wind is random. Today, wind energy is assimilated into the grid by legislative mandates, feed-in tariffs, favorable penalty pricing, guaranteed grid access, and/or construction subsidies. The variability in production is absorbed by scheduling operating reserves. For example, in California, the Participating Intermittent Resource Program (PIRP) legislation compels the system operator to accept all produced wind power subject to certain contractual constraints. This amounts to a system take-all-wind scenario in which wind power is treated as a negative load. The burden of reserve costs is socialized among the load serving entities (LSE). This extra-market approach works at today's modest penetration levels, but will become untenable as wind penetration increases for both economic and environmental reasons. We discuss the consequences on wind integration in the near term as wind power producers are forced to participate in competitive electricity markets alongside conventional dispatch-able generation. We explore aggregation, firming strategies, and fair reserve cost allocation. In the long term, we argue that new market mechanisms are required to deal with wind power variability. These include intra-day markets to leverage on improved forecast accuracy on shorter horizons, bilateral contracts with interruptible loads such as electric vehicles, and most radically, the possibility of selling random power through price differentiated quality of supply.