The Value of Volatile Resources in Electricity Markets

- the value of wind generation falls dramatically with volatility

Sean Meyn, Matias Negrete-Pincetic, Gui Wang, Anupama Kowli, and Ehsan Shafieepoorfard.


Abstract: While renewable resources most certainly provide environmental benefits, and also help to meet aggressive renewable energy targets, their deployment has pronounced impacts on system operations. There is an acute need to understand these impacts in order to fully harness the benefits of renewable resource integration. In this paper we focus on the integration of wind energy resources in a multi-settlement electricity market structure. We study the dynamic competitive equilibrium for a stochastic market model and obtain closed form expressions for the supplier and consumer surpluses. Numerical results based on these formulae show that the value of wind generation to consumers falls dramatically with volatility. In fact, we can establish thresholds for the coefficient of variation beyond which the value of wind is questionable. These findings can help guide the integration of renewables in future electricity markets.

Recent Presentation, New England ISO, July, 2010

Newton Institute Tutorial and Panel Lecture, May, 2010 (see also the Cambridge website)

Data from BPA Balancing Authority Load and Total Wind Generation, Near-Real-Time:

BPA Wind 2010  


Plot shows typical load and wind generation data for BPA balancing authority (data shown spans January 16 - 22, 2010).

Wind generation is approximately 20% of demand, and generation from wind is highly volatile.



The main message of this paper is that consumer welfare may fall dramatically as more and more wind generation is dispatched. This is true even under the most ideal circumstances in which the consumer owns all wind generation resources, and the perfect competition setting of this paper in which price manipulation is excluded.

Closed-form formulae show that under the current scheme of dispatch all the wind, no matter who commands the wind (supplier or consumer), consumer welfare falls and supplier welfare will eventually rise with increases in either wind penetration or its volatility.


Wind generation in New Zealand over a typical week in August, 2009

Consumer welfare when consumer commands the wind:


Shown on the right are plots of average consumer and supplier welfare as a function of wind penetration (as a percentage of demand, denoted k), and coefficient of variation (denoted cv).

When volatility is low (below the value cv =0.1 in this experiment), the consumer sees increasing benefit with additional wind generation. As the coefficient of variation increases beyond this value, the consumer welfare decreases rapidly. With high volatility the consumer may be better served by reducing the wind power injected into the system.

Author = {S. Meyn and M. Negrete-Pincetic and G. Wang and A. Kowli and E. Shafieepoorfard},
Note = {Proc. of the \textit{49th Conf. on Dec. and Control}},
Title = {The Value of Volatile Resources in Electricity Markets},
Year = {2010}}

Title = {A Control Theorist's Perspective on Dynamic Competitive Equilibria in Electricity Markets},
Address = {Milano, Italy},
Author = {G. Wang and A. Kowli and M. Negrete-Pincetic and E. Shafieepoorfard and S. Meyn},
Booktitle = {Proc. 18th World Congress of the International Federation of Automatic Control (IFAC)},
Year = {2011}}

Title = {Efficiency and marginal cost pricing in dynamic competitive markets with friction},
Journal = {Theoretical Economics},
Number = {2},
Pages = {215-239},
Volume = {5},
Year = {2010}}


Consumer commands the wind


Research supported in part by the Grainger Endowments to the University of Illinois, and DOE awards DE-OE0000097 and DE-SC0003879  

Prairie Fruits Farm Wind MillPrairie Fruits Farm