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This paper, based on the Fujian provincial 500 kV grid and part of the 220 kV grid and the key power plants, including hydro, coal, nuclear, gas, wind and pumping and storage hydro powers (PSHP) connected to the grid, constructs an independent electricity market model. Using data that are very close to reality about coal fired power production costs, along with data about power plants' technical constraints, this paper studies the effect of wind power on Fujian's provincial electricity market. Firstly, the paper analyzes the relationship between wind speed and wind power output and the effects of short-term power output fluctuation on frequency modulation and voltage regulation. Secondly, under supposition of the production costs following quadratic functions, the paper analyzes the effects of changes in wind power output on the electricity supply costs under optimal power flow. Thirdly, using the bidding model in the Australian Electricity Market Operator for reference and supposing that, in a competitive market, coal fired power plants can bid 6 price bands according to their capacity, the paper analyzes effects of wind power on electricity prices under optimal power flow, the stabilizing effects of PSHP and the minimum PSHP capacity needed to stabilize the electricity market. Finally, using a daily load curve, this paper simulates the electricity prices' fluctuation under optimal power flow and PSHP's stabilizing effect. The results show that, although PSHP has a large external social welfare effect, it can hardly make a profit. In the end, this paper puts forward some policy suggestions for Fujian province's wind and nuclear power development, PSHP construction and electricity market development.

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This paper constructs Fujian province's independent electricity market system, based on the province's 500 kV backbone grid structure and key power plants, simulates the electricity market functioning under optimal power flow when it is marketised, and analyses the price fluctuation space for pumped storage hydro power to operate. Because of the spatial distribution characteristics of power plants and demand load nodes, there are differences across the local marginal prices; as demand loads ramp, the local marginal prices fluctuate; when the electricity market is fully deregulated, the price fluctuation scale depends on the design of trading mode and demand supply situation. Electricity price fluctuation provides space for pumped storage hydro power to develop and earn profit; while the pumped storage hydro power arbitrages in the electricity market, it can improve the demand supply situation at valley and peak load periods and depress price soaring, and the social external positive effect is much higher than is pumped storage hydro power's internal profit. There is no guarantee that pumped storage hydro power can earn profit just by arbitraging in the market. In the end, this paper puts forward some policy suggestions for pumped storage hydro power development and electricity marketisation.