Wind Uncertainty in Electricity Markets: Practical Challenges?

Integrating large quantities of wind and solar energy is often considered a challenge due to the intermittent nature of renewable generation. I present evidence on the costs and benefits of renewable power based on data from the Iberian Electricity market, which as of 2012 produces over 20% of its electricity from wind power, and about 5% of its electricity with solar power. I examine the challenges of wind and solar integration from an empirical perspective, and quantify the relative impacts of uncertainty and volatility on realized electricity costs. I also show how market incentives can distort optimal planning, by examining wind farm behavior in centralized electricity auctions. Allowing wind farms to participate in centralized markets can increase competition and decrease procurement costs, but it might increase inefficiencies in the market.