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Estimating the impact of wind generation on balancing costs in the GB electricity markets

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2 Author(s)
Gregory P. Swinand ; London Economics ; Moritz Godel

This paper studies the impact of wind generation on system balancing costs. The paper makes use of a novel and rich dataset on half-hourly and five-minute generation by fuel and generation type and system balancing prices and volumes made available by the UK market and systems operator for every period from November 2008 to November 2011. An econometric cost function approach is used, where the total cost of balancing is regressed against wind generation and other explanatory variables. A number of specifications are tested and the regression diagnostics indicate an important correction for serial correlation. The results indicate that there are statistically significant impacts on system balancing costs from wind; more wind generation increases system balancing costs. However, the best-fit equation is quadratic in wind generation, and so the cost impact of wind generation on balancing costs is increasing at a decreasing rate; the marginal cost is positive but decreasing and linear. At high levels of wind generation and given the existing generation portfolio the balancing cost impact is statistically zero. Moreover, under a range of specifications, the magnitude of these costs is not high relative to total system balancing costs and the cost of power in the UK. We conclude that balancing system impacts of wind for five to ten GW of installed capacity in the UK are not likely to be high, given the estimated current average cost of about €0.01 over all the power transported on the GB system.

Published in:

2012 9th International Conference on the European Energy Market

Date of Conference:

10-12 May 2012