Estimating the Impact of Wind Generation in the UK

TL;DR

This study analyzes the impact of wind power on UK electricity prices and costs, revealing a modest net economic effect and emphasizing the importance of both onshore and offshore wind for cost savings.

Contribution

First UK analysis of wind's effect on market prices and costs, including the Merit Order Effect and the importance of combined onshore and offshore wind.

Findings

Wind reduces spot prices by 1.67% per percentage point of generation.

Total costs of wind are roughly offset by price savings, resulting in a slight net gain.

Removing either onshore or offshore wind reduces the Merit-Order Effect and increases overall costs.

Abstract

This paper studies the impact of wind generation on market prices and system costs in the UK between 2013 and 2014. The wider effects and implications of wind generation is of direct relevance and importance to policy makers, as well as the grid operator and market traders. We compare electricity generation from Coal, Gas and wind, on both the wholesale and imbalance market. We calculate the system cost of wind generation (government subsidies and curtailment costs) and the total energy costs. For the first time in the UK, we calculate the Merit Order Effect on spot price due to the wind component and show a $1.67\%$ price decrease for every percentage point of wind generation (compared to the ``zero-wind'' price). The net result of total costs and price savings is roughly zero (slight positive gain). We also consider the effect of not having either an onshore or an offshore wind component. We show that the Merit-Order Effect savings are heavily reduced, leading to an outgoing cost of wind generation in both cases. It is therefore important to have a significant total percentage of wind generation, from both onshore and offshore farms.