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WIREs Energy Environ.
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The Influence of interconnection capacity on the market value of wind power

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Abstract One key prerequisite for reaching high wind shares in Europe is an expansion of the existing transmission grid. So far, grid studies focus on welfare effects and technical aspects of grid planning. In this paper, a stylized two‐system model is used to analyze principal effects of transmission grid expansions on the market value of wind power. When two markets with similar supply characteristics and wind shares but not perfectly correlated wind power generations are interconnected, the market value of wind power increases. For a more general case of an importing and exporting market, this is still true for overall wind power generation but not necessarily for generations in both markets. The reduction in generation cost due to the interconnection of markets with significant wind shares is highly sensitive to the correlation of wind power generations. These results have two major implications: (i) Wind power generators can manage the risk associated with market value changes due to interconnection capacity by distributing their portfolio across markets and (ii) when evaluating the economics of an interconnector proper modeling of wind power generation is crucial. This article is categorized under: Energy Systems Economics > Economics and Policy Energy Policy and Planning > Economics and Policy
Welfare effect of interconnector capacity in a two‐market system.
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Import/export case—total generation cost depending on the interconnector capacity, wind–wind correlation, and supply curve offset. Assumption: default settings.
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Import/export case—market values and baseload prices depending on the interconnector capacity for perfectly correlated (left) and statistically independent (right) wind power generations. Assumptions: default settings, cBoffset = 0.5.
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Effect of wind power variability on the baseload price in the case of a convex supply curve.
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Dependency of baseload price and market value of wind power on the interconnection capacity for two wind‐wind correlation scenarios. Results are normalized with the reference baseload price—the baseload price for isolated markets. Assumptions: default settings.
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Supply representation in the 2‐system model.
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Exemplary illustration of the impact of wind power on the welfare gain of interconnector capacity.
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Energy Policy and Planning > Economics and Policy
Energy Systems Economics > Economics and Policy

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