An empirical investigation of wind penetration impacts on generators within a wholesale electricity market

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  Abstract

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​Using data from Pennsylvania – New Jersey – Maryland (PJM) market from 2016 – 2019, we answer an important energy policy question: does the increasing penetration of wind power undermine its own revenues as well as revenues from other generating technologies across various wholesale electricity market conditions? To answer this question, we use quantile regression to analyze the unit revenue and value factor impacts of wind power supply covering a comprehensive spectrum of conditional quantile distributions in order to reflect a wide range of market conditions. The estimates obtained from quantile regressions indicate that the impacts of wind power supply differ considerably across quantiles, reinforcing the need for this type of study. Our findings show that as wind power supply expands, the revenue earned by wind power producers is reduced across all quantiles. Specifically, each additional GWh increase in electricity from wind is associated with a fall in its unit revenues across quantiles by an amount that ranges from approximately $0.01/MWh to $0.08/MWh. Results also confirm cross-cannibalization impacts such that each additional GWh increase from wind is associated with decreased gas and baseload capacity revenues across all quantiles ranging from $0.02/MWh to $0.06/MWh. Contrary to the unit revenue results, wind supply's cannibalization effect on value factor does not exist below the 90% quantile (positive impacts on value factor) but is demonstrated with negative impacts occur at the 95% and 99% quantiles. We offer several explanations for this inconsistency.  Overall, the negative impacts of wind power on all generators demonstrate the need for corrective policies within wholesale or retail electricity markets

 

Keywords: Wind power, Merit-order effect, Quantile regression, Electricity price, Value factor, PJM market.

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JEL CLASSIFICATION: C21, C22, D4, Q21, Q41, Q42

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