Does it matter when the wind blows? Differential impacts of wind generation on the PJM wholesale electricity market

Abstract

As wind power continues to gain traction as a sustainable energy source, important questions arise as to how and when increasing penetration of wind power undermines its own revenues as well as revenues from other generating technologies in the wholesale electricity market. To answer this question, we analyzed data from the Pennsylvania-New Jersey-Maryland (PJM) market (with relatively low, approximately 3% wind penetration) from 2016 to 2019 using quantile regression methods that provide a comprehensive picture of market conditions. Our findings demonstrate that the merit order effect exists for wind power supply expansion with unit revenue declines across all quantiles and generators. These declines occur consistently throughout market conditions but at different magnitudes. Each additional GWh of wind power is associated with a fall in wind revenue ranging from $0.01/MWh to $0.08/MWh. Wind power's cross-cannibalization effect also reduces gas and baseload capacity revenues across all quantiles, ranging from $0.02/MWh to $0.06/MWh per additional GWh of wind power. Interestingly, our results also reveal positive impacts of wind power supply on value factors (a measure of the energy's worth to the market) at low price market conditions, but negative impacts at high price conditions of the 95% and 99% quantiles. These findings confirm differential impacts of wind power across market conditions – more wind increases its worth at low market values but decreases its worth at high market values. Although the observed effects are exceedingly small, the findings of negative and unequal impacts on unit revenue in this research provide some insights and possible policy recommendations for energy market analysts, wind developers, and energy policymakers.