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CEIC-10-02

"Economics of Compressed Air Energy Storage to Integrate Wind Power: A Case Study in ERCOT"
Emily Fertig and Jay Apt

Abstract:
Compressed air energy storage (CAES) could be paired with a wind farm to provide firm, dispatchable baseload power, or serve as a peaking plant and capture upswings in electricity prices. We present a firm-level engineering-economic analysis of a wind/CAES system with a wind farm in central Texas, load in Houston, and a CAES plant whose location is profit-optimized. Transmission and CAES capacities are optimized under three electricity price scenarios. Using 2008 hourly prices, the economically optimal CAES expander capacity is unrealistically large - 20 GW - and dispatches for only a few hours per week when prices are highest. A $300/MWh price cap and contract price each render the wind/CAES system unprofitable. A baseload wind/CAES system is less profitable than a natural gas combined cycle (NGCC) plant at carbon prices less than $130/tCO2 (2008 data) to $300/tCO2 (2009 data). Using the wind/CAES system in regulation markets as well as the balancing energy market raises profit only slightly.

Social benefits of CAES paired with wind include avoided construction of new generation capacity, improved air quality during peak times, and increased economic surplus, but may not outweigh the private cost of the CAES system nor justify a subsidy.

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