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CEIC-10-06

"Can a Wind Farm with Storage Survive in the Day-ahead Market?"
Brandon Mauch, Pedro M.S. Carvalho, and Jay Apt

Abstract:
We investigate the economic viability of coupling a wind farm with compressed air energy storage (CAES) to participate in the day-ahead electricity market. In our analysis we assume that renewable portfolio standards have been fully met and government subsidies have expired.
Optimal hourly dispatch quantities of electricity for one year are calculated using a dynamic programming model with the objective of maximizing hourly revenues. Inputs for the model are wholesale electricity prices and wind power forecasts from a single wind farm. Dispatch quantities from the model are then used with measured wind power generation data to determine hourly profits for the wind farm.
We find that annual revenue for the wind farm would not be enough to cover annualized capital costs of the wind farm and CAES facility when using market prices for Texas and Iowa during the years 2006 to 2009. We then estimate market prices with a carbon price of $20 and $50 per tonne CO2 and find that revenue would still not cover the capital costs. The implied cost per tonne of avoided CO2 for a profitable wind - CAES system is roughly $100, with large variability due to electric power prices.

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