Journal of Energy Markets

Risk.net

Zonal merit-order effects of wind generation development on day-ahead and real-time electricity market prices in Texas

Jay Zarnikau, Chi-Keung Woo and Shuangshuang Zhu

  • In the ERCOT market, the merit-order effects of wind capacity on RTM prices has been higher than the merit-order effects upon DAM prices
  • Wind generation development in the West zone has an impact on RTM prices in the West and North zones and on DAM prices in the West zone; while development in the South zone impacts RTM prices in the South zone
  • The presence of load and wind generation forecast errors cause the DAM and RTM prices to diverge

ABSTRACT

This paper uses a regression-based approach to explore the impact of wind generation development on wholesale electricity prices in the Electric Reliability Council of Texas (ERCOT) market. We find that wind generation development has a greater effect on real-time market (RTM) prices than day-ahead market (DAM) prices. Higher wind generation forecast errors tend to reduce the RTM prices, chiefly because unanticipated increases in wind generation reduce the real-time net loads to be served by fossil fuel power plants. Improving ERCOT's load and wind generation forecast accuracy tends to make the DAM and RTM prices converge, thus enhancing ERCOT's market trading efficiency. Finally, the estimated merit-order effects are greatest in the ERCOT zones where the wind generation capacity locally resides.