Large-scale wind power integration and wholesale electricity trading benefits: Estimation via an ex post approach Hugo A. Gil n,1 , Catalina Gomez-Quiles, Jesus Riquelme University of Seville, Department of Electrical Engineering, Camino Descubrimientos S/N, 41092 Seville, Spain article info Article history: Received 24 April 2011 Accepted 23 November 2011 Available online 10 December 2011 Keywords: Wind power Electricity prices Benefits abstract The integration of large-scale wind power has brought about a series of challenges to the power industry, but at the same time a number of benefits are being realized. Among those, the ability of wind power to cause a decline in the electricity market prices has been recognized. In quantifying this effect, some models used in recent years are based on simulations of the market supply-side and the price clearing process. The accuracy of the estimates depend on the quality of the input data, the veracity of the adopted scenarios and the rigorousness of the solution technique. In this work, a series of econometric techniques based on actual ex post wind power and electricity price data are implemented for the estimation of the impact of region-wide wind power integration on the local electricity market clearing prices and the trading savings that stem from this effect. The model is applied to the case of Spain, where the estimated savings are compared against actual credit and bonus expenses to ratepayers. The implications and extent of these results for current and future renewable energy policy-making are discussed. & 2011 Elsevier Ltd. All rights reserved. 1. Introduction Since the onset of the large-scale wind power industry, discussions between power utilities, system operators and policy makers have gravitated around the actions and strategies required for a seamless integration of wind farms with the existing conventional generation fleet and the transmission grid. These actions carry along additional costs, usually related to the supplementary reserve resources needed to balance the fluctuat- ing wind power output so as to comply with the frequency regulation requirements. Besides the widely known operational costs of integrating wind power, network interconnection may play an important role in the overall integration costs of a wind project as well. This is particularly noticeable for off-grid remote projects. High grid interconnection costs may represent an important chunk of the overall costs and turn those projects financially unfeasible. Several mechanisms have been put on by regulators in some jurisdictions to facilitate wind power integra- tion such as anticipated network development in declared wind rich areas. The costs of these developments are expected to be recovered from the future wind farms over their lifetime, spread in the form of network access fees to all market agents or simply recouped from the bulk of ratepayers. The various industry stakeholders have made substantial progress in the learning curve of system impacts of large (or utility) scale wind power integration. A number of different studies backed by practical experience have shown that the initially feared negative impacts are in general manageable with current technology and adaptive operational practices. Wind power has definitely entered the mainstream as power generation technology. But this success has been made possible at a tangible cost for society. The wind power industry has usually relied on a credit or bonus framework, put on by regulators to make renew- able energy investments competitive with conventional sources. At one end lie the ratepayers and wholesale market buyers, the conglomerate that bears the extra costs of the credits bestowed to wind farm owners. The underlying fact is that the wind resource is available basically at no cost so the marginal cost of producing power from a wind turbine is essentially zero. Since wind power is usually given priority at clearing stage in most electricity markets, every unit of output from a wind farm displaces output from a conventional generator that would have been otherwise dispatched. The supply stack of candidate generators at a given market clearing step is therefore ‘shifted’ downward so the marginal cost of producing power tends to decline in the process. Measuring the influence of the aggregated output from wind farms over large areas in the local electricity prices or in Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.11.067 n Corresponding author. Tel.: þ34 954 487 283. E-mail address: hgil@us.es (H.A. Gil). 1 This work has been supported by the Ramo ´n y Cajal research fellowship program by the Ministry of Science and Innovation, Spain, and by the Office of Innovation, Science and Enterprise, Government of Andalusia, Spain, under Grant P09-TEP-5170. Energy Policy 41 (2012) 849–859