1. 2017 ASSA/AEA Annual Meeting, Chicago, 6-8th January Frank Obermüller
Build wind capacities at windy locations? Assessment of system optimal wind locations under feed-in tariffs
2017 ASSA/AEA Annual Meeting, Chicago, 6-8th January
Frank Obermüller
This presentation: Close the gap between meteorological side (i.e. high resolution wind data) and energy economics (i.e. market value of wind or the impact to the electricity market)

2. Motivation Aim for market integration of renewables
IEA Report (June 2016):
„[Renewable subsidy] plans should be based on the long-term value of VRE to the power and wider energy system.“
“Next-generation approaches need to factor in the system value of electricity from wind and solar power”
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

3. Motivation Value of a wind turbine to the market
Market value of wind production:
with:
Hirth: “The market value of variable renewables: The effect of solar wind power variability on their relative price." Energy economics 38 (2013)
Elberg, Hagspiel: “Spatial dependencies of wind power and interrelations with spot price dynamics.” European Journal of Operational Research 241 (2015)
Market value
Expected market value of wind
[EUR/MWh]
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

4. Motivation But: Uniform pricing can be inefficient!
Market value of wind production:
with:
Several electricity markets have uniform pricing, e.g. Europe
In uniform pricing, grid situations may not be internalized sufficiently
This can lead to inefficient capacity allocations and production situations
Improvement: System value of wind production:
with:
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

5. Methodology Nodal Electricity Market Model
Minimization of total system costs
Electricity balance restriction (supply=demand)
Model and input data are open source
Website:
Some model facts:
Research Focus on Germany
Uniform pricing
regional different wind situations
high share of installed wind capacities
585 nodes
852 lines
DC-loadflow model
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

6. Methodology Nodal Electricity Market Model
Additional input:
High-resolution wind data
Adding high resolution wind energy data to the nodal electricity market model.
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

7. Results System value of regional wind production
Regional System Value of Wind (Nodal pricing)
Histogram
Wind value [100%]
Frequency
The Regional System Value of Wind Production could have structural breaks, e.g., as in Germany
*) Note: Colormap is restricted to a minimum of 80% for comparison reasons
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

8. Results Comparison: System Value vs. Market Value
Regional System Value of Wind (Nodal pricing)
Regional Market Value of Wind (Uniform pricing)
The regional value of wind is strongly dependent on the pricing regime (and thus on the grid situation)
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

9. Results Comparison: Regional market profits
Market profit under Nodal pricing
Market profit under Uniform pricing
Can be considered as efficient benchmark since grid situation is internalized to market profits
Uniform pricing may favor regions which are not system optimal and, e.g., increase grid congestions
The pricing regime (nodal vs. uniform) influences the regional market profits.
Under uniform pricing, inefficient allocations may be incentivized
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

10. Results Comparison: Nodal market profit vs. Fixed FiT
Market profit under Nodal pricing
Wind profit of Fixed Feed-in Tariff
(for 1 MW turbine, 1 year)
(for 1 MW turbine, 20 years)
A Fixed Feed-in Tariff (without a regional component) does not sufficiently consider the regional value of wind and may favor different (sub-optimal) wind locations
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

11. Conclusion Contribution to existing research:
Quantification of (1) regional system values, (2) regional market values, and (3) fixed feed-in remunerations for German wind production
Findings:
The Regional System Value of Wind Production could have structural breaks, e.g., as in Germany
The pricing regime (nodal vs. uniform) influences the regional market profits. Under uniform pricing, inefficient allocations may be incentivized
A Fixed Feed-in Tariff (without a regional component) does not sufficiently consider the regional value of wind and may favor different (sub-optimal) wind locations
Conclusion:
A well-designed subsidy scheme needs to incorporate the regional system value
This can be achieved, e.g., via nodal pricing and a market price component
A fixed feed-in tariff may set wrong capacity allocation incentives
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

12. Exploring Energy Markets – Enhancing Decisions!
Frank Obermüller
EWI – Institute of Energy Economics at the University of Cologne
ewi Energy Research & Scenarios gGmbH
Alte Wagenfabrik
Vogelsangerstraße 321
D Cologne
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

13. Backup / Appendix
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller

14. Backup Reimbursements of fixed feed-in tariff
Wind profit of Fixed Feed-in Tariff 1
Modelled wind production data per turbine 2
Calculated reimbursements based on Fixed Feed-in Tariff
Of an exemplary wind turbine:
1 MW Turbine
66m Hub-Height
2380 m2 swept area
Regional wind values | Jan. 07, 2017 | ASSA/AEA Annual Meeting | Frank Obermüller