Build wind capacities at windy locations?

Assessment of the regional value of wind production

Frank Obermüller

In recent years, wind power capacities have increased in many countries, mainly due to subsidy schemes. One subsidy scheme is the fixed feed-in tariff which reimburses a fixed rate for every produced kWh wind energy. This gives incentives to build wind capacities at windy locations independent of grid congestions or market price incentives.

In this paper, I investigate the discrepancy between profit optimal wind locations under a fixed feed-in tariff in contrast to system optimal wind locations.

The results point to structural differences between optimal locations from a profit and a system perspective. Furthermore, the analysis shows that a uniform pricing (as it is common in Europe) has significant disadvantages in incentivizing system optimal wind locations. Overall, subsidy schemes should internalize market prices as well as the transmission situation.

Figure: Regional differences in market revenues under nodal pricing for a 1 MW turbine (66m hub-height) over 1 year.