U.S. wind power generation has experienced rapid growth in the last
20 years as total installed capacity has increased from 1,500
megawatts (MW) in 1992 to more than 50,000 MW in August of 2012.
According to the Energy Information Administration (EIA), wind
power provided approximately 3% of total U.S. electricity
generation in 2011. Two primary policies provide market and
financial incentives that support the wind industry and have
contributed to U.S. wind power growth: (1) production tax credit
(PTC)-a federal tax incentive of 2.2 cents for each kilowatt-hour
(kWh) of electricity produced by a qualified wind project (set to
expire for new projects at the end of 2012), and (2) renewable
portfolio standards (RPS)-state-level policies that encourage
renewable power by requiring that either a certain percentage of
electricity be generated by renewable energy sources or a certain
amount of qualified renewable electricity capacity be installed.
The concentration of wind power projects within competitive power
markets managed by regional transmission operators (RTOs), the
focus of this report, has resulted in several concerns expressed by
power generators and other market participants. Three specific
concerns explored in this report include: (1) How might wind power
affect wholesale market clearing prices? (2) Does wind power
contribute to negative wholesale power price events? and (3) Does
wind power impact electric system reliability? These concerns might
be considered during congressional debate about the future of wind
PTC incentives. When considering the potential impacts of wind
power on electric power markets, it is important to recognize that
wholesale power markets are both complex and multi-dimensional.
Wholesale power markets are influenced by a number of factors,
including weather, electricity demand, natural gas prices,
transmission constraints, and location. Therefore, determining the
direct impact of a single variable, in this case wind power, on the
financial economics of power generators can be difficult. In 2012,
wholesale electric power prices were down from recent highs in
2008, and lower price trends can result in financial pressure for
power generators in RTO markets. Arguably, however, the two primary
contributors to this decline are low natural gas prices and low
electricity demand. Wind power generation can potentially reduce
wholesale electricity prices, in certain locations and during
certain seasons and times of day, since wind typically bids a zero
($0.00) price into wholesale power markets. Additionally,
independent market monitor reports for three different RTOs each
indicate that wind generators will sometimes bid a negative
wholesale price in order to ensure electricity dispatch. The
ability of wind generators to bid negatively priced power is
generally attributed to value associated with PTC incentives and
the ability to sell renewable energy credits (REC). However,
wholesale power price reductions and negative electricity prices
associated with wind generation need to be considered in context
with other dimensions of organized power markets. The absolute
impact of wind electricity on the economics of power generators is
difficult to determine due to the many variables and dimensions
that influence wholesale power markets. With regard to how wind
power might impact electricity system reliability, two aspects of
reliability are typically discussed: (1) impacts to system
operations-the ability of the power system to manage the variable
and sometimes unpredictable nature of wind power production, and
(2) resource adequacy and capacity margins-the potential for wind
power generation to either influence power plant retirements or
contribute to market conditions that do not support investment in
new capacity resources.
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