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Do British wind generators behave strategically in response to the Western Link interconnector?

Mario Intini and Michael Waterson
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Mario Intini: University of Bari “Aldo Moro”, Italy

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings.

Keywords: Interconnector; Electricity Market; Wind forecasting; Wind Generators; Pricing Strategies. (search for similar items in EconPapers)
JEL-codes: D22 D47 H54 L22 Q41 Q47 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1242

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