Balancing Reserves in a Power System with High Wind Penetration - Evidence from Portugal

The growth of intermittent renewable power generation has been drawing attention to the design of balancing markets. Portugal is an interesting case study because, while wind generation already accounts for a high fraction of demand (23 %), there are still no economic incentives for efficient wind forecast (wind balancing costs are passed to end consumers). We analyze the evolution of the balancing market from 2012 to 2016. Using actual costs provided by the Portuguese TSO, we find wind imbalance costs in the range of 2 to 4 EUR/MWh. These results surprisingly suggest that, even with large wind penetration and socialized imbalance costs, wind forecast errors can have a relatively low cost.