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The Merit Order Effect of Wind Generation on the Irish Electricity Market

O'Mahoney, Amy and Denny, Eleanor (2011): The Merit Order Effect of Wind Generation on the Irish Electricity Market.

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Abstract

This paper considers the cost savings arising from wind generation through the merit order effect in gross pool electricity markets, using the Irish electricity market as a case study. The Irish electricity market makes for a good testing ground due to the fact that it is a single market with very little interconnection to other markets, allowing impacts of wind to be more clearly identified than on a more interconnected system. Ireland also has extremely ambitious renewable energy targets, resulting in a high penetration of wind generation. The authors estimate the historic cost savings arising from wind generation in the Irish electricity marketusing an hourly time series OLS regression model for 2009. We find that the value of wind to the market dispatch has resulted in savings of €141 million to the market dispatch. We find that the total costs to the market would have been in the region of 12% higher over the course of the year had no wind output been available. These savings are significantly greater than the subsidy received for wind-generated electricity over this time period, and as a result it can be seen that the positive externalities derived from wind generated electricity outweigh the cost of the subsidy; particularly when one considers the CO2 saving to the market and accepts that all forms of generation impose integration costs to electricity systems.

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