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CEIC-13-03

Near-term Economics and Equity of Balancing Area Consolidation to Support Wind Integration
Todd Ryan, Paulina Jaramillo, and Gabriela Hug

Abstract:
Balancing area consolidation could have economic benefits and improve the reliability of the U.S. electricity network, especially when transitioning to a future with significantly increased levels of renewable generation. Yet there has been little consolidation since the Midwest Independent System Operator was created in 1998. This research addresses this disparity by measuring the size and equity of the near-term economic gains associated with balancing area consolidation in nine scenarios of different wind penetrations, natural gas prices, and efficiency gains associated with the frequency regulation market. This study finds that sharing of economic resources through balancing area consolidation is a policy that leads to economic gains that are Kaldor-Hicks efficient. These gains are equivalent to a total cost reduction of $0.02-$0.2/MWh but could be as high as $1.7/MWh. Additionally, the data show little economic motivation for consolidation given the near-term expectation of wind penetration (0%- 20% by energy). These results help to explain why BA consolidation is not more wide-spread: there are few benefits to consolidating today and those benefits are inequitably distributed among those consolidating.

 

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