Short-term optimal wind power generation capacity in liberalized electricity markets

Abstract

Mainly because of environmental concerns and fuel price uncertainties, considerable amounts of wind-based generation capacity are being added to some deregulated power systems. The rapid wind development registered in some countries has essentially been driven by strong subsidizing programs. Since wind investments are commonly isolated from market signals, installed wind capacity can be higher than optimal, leading to distortions of the power prices with a consequent loss of social welfare. In this work, the influence of wind generation on power prices in the framework of a liberalized electricity market has been assessed by means of stochastic simulation techniques. The developed methodology allows investigating the maximal wind capacity that would be profitably deployed if wind investments were subject to market conditions only. For this purpose, stochastic variables determining power prices are accurately modeled. A test system resembling the size and characteristics of the German power system has been selected for this study. The expected value of the optimal, short-term wind capacity is evaluated for a considerable number of random realizations of power prices. The impact of dispersing the wind capacity over statistical independent wind sites has also been evaluated. The simulation results reveal that fuel prices, installation and financing costs of wind investments are very influential parameters on the maximal wind capacity that might be accommodated in a market-based manner.