Does wind energy mitigate market power in deregulated electricity markets?

Ori Ben-Moshe, Ofir D. Rubin

Research output: Contribution to journalArticlepeer-review

Abstract

A rich body of literature suggests that there is an inverse relationship between wind power penetration rate into the electricity market and electricity prices, but it is unclear whether these observations can be generalized. Therefore, in this paper we seek to analytically characterize market conditions that give rise to this inverse relationship. For this purpose, we expand a recently developed theoretical framework to facilitate flexibility in modeling the structure of the electric industry with respect to the degree of market concentration and diversification in the ownership of wind power capacity. The analytical results and their attendant numerical illustrations indicate that the introduction of wind energy into the market does not always depress electricity prices. Such a drop in electricity prices is likely to occur when the number of firms is large enough or the ownership of wind energy is sufficiently diversified, or most often a combination of the two. Importantly, our study defines the circumstances in which the question of which type of firm invests in wind power capacity is crucial for market prices.

Original languageAmerican English
Pages (from-to)511-521
Number of pages11
JournalEnergy
Volume85
DOIs
StatePublished - 1 Jun 2015

Keywords

  • Deregulated electricity markets
  • Oligopoly pricing
  • Wind energy

All Science Journal Classification (ASJC) codes

  • Mechanical Engineering
  • Pollution
  • Electrical and Electronic Engineering
  • Industrial and Manufacturing Engineering
  • Building and Construction
  • Civil and Structural Engineering

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