The Impact of Wind Generation on Wholesale Electricity Prices in the Hydro-Rich Pacific Northwest

Extant literature documents that wind generation can reduce wholesale electricity market prices by displacing conventional generation. But how large is the wholesale price effect of wind generation in an electricity market dominated by hydroelectric generation? We explore this question by analyzing the impact of wind generation on wholesale electricity prices in the Pacific Northwest region of the United States. This hydro-rich system tends to be energy-limited, rather than capacity-constrained, with its marginal generation during the hydro runoff season often a hydro unit, instead of a natural-gas-fired unit. We find that increased wind generation reduces wholesale market prices by a small, but statistically-significant, amount. While a hydro-rich system can integrate wind generation at a lower cost than a thermal-dominated region, the direct economic benefits to end-users from greater investment in wind power may be negligible.