Intermittency or Uncertainty? Impacts of Renewable Energy in Electricity Markets

Renewable energy resources possess unique characteristics-intermittency and uncertainty-that pose challenges to electricity grid operations. We study these characteristics and find that uncertainty, represented by wind forecast error, has larger grid impacts than intermittency, represented by hourly wind generation changes. Compared to wind generation that was correctly forecast, uncertainty yields roughly double the effect on the marginal cost of operating the grid and greater adjustment costs as conventional generators must start up to balance the grid. While this finding is important given the persistence of wind generation uncertainty over our study period, reducing wind forecast error to the level of demand forecast error would lower costs by a modest half a million dollars per year.