Date of Award

8-2010

Level of Access

Campus-Only Thesis

Degree Name

Master of Science (MS)

Department

Resource Economics and Policy

Advisor

Gary Hunt

Second Committee Member

George Criner

Third Committee Member

Jonathan Rubin

Abstract

In April 2010, the Governor of Maine signed a bill adopting the goal of installing 5 GW of offshore wind energy generation in the Gulf of Maine by 2030. The project aims to develop the strong wind energy potential of the state and decrease its dependence on polluting and expensive fossil fuels. However, the effects of additional wind energy on the electricity wholesale prices are still unknown and are addressed in this thesis. Theoretically, the impacts of the addition of wind powered electricity on the New England grid should be a wholesale electricity price decrease because it will modify the merit order curve, or supply curve formed by bids from generators. More wind generation will increase the supply of low marginal cost electricity, causing lower prices. However, in Maine, new transmission infrastructures that would be built to export wind energy to the rest of New England could relieve congestion. The congestion effect is currently contributing in keeping wholesale prices in Maine lower than in the rest of New England. Therefore, the effect of wind energy addition on the wholesale price for Maine depends on which effect, between the merit order effect and the congestion effect, will be the largest. The merit order effect is confirmed and quantified by econometrically estimating the impact of the addition of electricity from renewable sources on the day ahead locational marginal price in New England with a two-stage least square model. Also, the congestion effect is confirmed theoretically and with case studies. Based on the econometrical model developed and assuming that congestion is completely relieved, the addition of wind from a 5 GW capacity project would decrease the day ahead locational marginal price between 6.6% and 11.4%.

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