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In England and Wales, wholesale electricity is sold in a spot market partly covered by long‐term contracts which hedge the spot price. Two dominant conventional generators can raise spot prices well above marginal costs, and this is profitable in the absence of contracts. If fully hedged, however, the generators lose their incentive to raise prices above marginal costs. Competition in the contract market could lead the generators to sell contracts for much of their output. Since privatisation the generators have indeed covered most of their sales in the contract market.

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This paper evaluates the impact of intermittent wind generation on hourly equilibrium prices and output, using data on expected wind generation capacity and demand for 2020. Hourly wind data for the period [1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005] are used to obtain wind output generation profiles for thirty regions (onshore and offshore) across Great Britain. Matching the wind profiles for each month to the actual hourly demand (scaled to possible 2020 values), we find that the volatility of prices will increase, and that there is significant year-to-year variation in generators' profits. Above-average wind speeds lead to belowaverage prices, but annual revenues for British wind generators (producing more in the winter) are almost as great as for base load generators. In the presence of significant market power (the equivalent of two symmetric firms