Incremental wind energy development in the Midcontinent Independent System Operator electricity markets of the United States

Abstract

This paper projects how much incremental wind energy development (WED) may occur without causing inadequate investment incentives (aka missing money) for wind generation and natural-gas-fired generation in the day-ahead market (DAM) and real-time market (RTM) of the Midcontinent Independent System Operator (MISO) in the US. Using a large sample of hourly data for the 82-month period of 01/01/2014 -10/31/2020, it documents that the DAM's hourly investment incentives move with (a) the day-ahead forecast of daily natural gas price; (b) MISO's day-ahead hourly requirements of ancillary services; (c) MISO's zonal day-ahead hourly schedules of nuclear generation, wind generation, and must-run generation; and (d) MISO's zonal day-ahead forecasts of hourly loads. Findings based on the RTM's hourly data tell a similar story. Further, the negative effect of incremental WED on investment incentives over the forward-looking period of 2023-2042 is offset by the positive effect of rising natural gas price, nuclear plant retirement, declining must-run generation, and growing demand. In the extreme case of nuclear plant retirement and zero must-run generation, incremental WED of up to ~441% of the existing wind generation level may occur as a market-based outcome without missing money in MISO's DAM.