The incentive to invest in thermal plants in the presence of wind generation

Abstract

In a deregulated market, the decision to add generation rests with private investors. This paper evaluates how generator profits are affected by increasing wind generation. Using hourly historical data for the Irish Single Electricity Market, we simulate new series of electricity prices, representative plant bids and wind generation. We calibrate the model based on the negative correlation between electricity prices and wind generation. This allows us to determine that increasing wind generation induces lower profits for all baseload plants. Additionally, it decreases profits for baseload natural gas plants more than for less flexible coal-fuelled plants, which might encourage investment in less flexible plants.