Wind power and electricity markets - Wind Power Integration: Connection and System Operational Aspects - page 246

In parallel with the radical changes that are occurring in the structures of the
electricity industry, there is a dramatic increase in the amount of wind power being
connected to many electricity grids (Keane and O'Malley, 2005). Wind power
development is being driven by the desire to reduce harmful greenhouse gas emis-
sions and by substantial cost increases in fossil fuels and security of supply issues
which make wind power more attractive and more competitive. The convergence of
electricity industry restructuring with an increase in wind generation capacity poses
a significant challenge to the industry. While the technical issues related to wind
power described elsewhere in this topic are important, it is the economic and market
issues that ultimately decide the amount of wind power that is connected to elec-
tricity grids. There is an opportunity to develop robust solutions to secure the long-
term sustainability of the electricity industry, with wind power making a significant
contribution. Failure to rise to these challenges will threaten the reliability and
efficiency of the electricity industry that underpins modern industrial society.
In contrast to Chapter 5, where it was assumed that wind power was operated
in a vertically integrated environment, here it is assumed that wind power is one
player in a competitive market place. The players and the market place will now be
described briefly.
The monopoly characteristic of the transmission and distribution systems
requires independent transmission system operators (TSOs) and distribution system
operators (DSOs) who will operate the transmission and distribution systems. The
transmission and the distribution network assets may be owned by the system
operators or by another entity - the network owner. As natural monopolies, trans-
mission and distribution entities are regulated under the new structures.
Generation and supply entities are suitable for competition in certain circum-
stances, and this has led to the development of competitive electricity markets.
Electricity markets come in all shapes and sizes. There is no standard design for an
electricity market, although attempts have been made to encourage some level of
standardisation (FERC, 2003). They can range in size from less than 1 GW with a
few participants on small islands to arrangements hundreds of times larger with
many participants on large interconnected systems. Physical electrical inter-
connection, DC or AC (Section 5.3), is a limiting factor on the size of the market.
Electricity markets are a product of their historical and political backgrounds, but
do share a number of fundamental characteristics that are described below.
There is a wide range of generation technologies, ranging from nuclear and
fossil fuel to renewable, including wind power. Further details of these other
technologies can be found elsewhere (Cregan and Flynn, 2003). The restructuring
has been facilitated by technological changes which have made smaller generating
plant more cost effective, e.g. gas plant in particular (Watson, 1997). The compe-
titive market structures have also spawned a degree of innovation in very small,
distributed plant such as combined heat and power (CHP) and wind.
Generators typically sell electricity, directly or indirectly, in bulk quantities to
suppliers who then sell it on to individual consumers. Alliances between generators
and suppliers will be based on contracts and/or on mergers into single entities,
i.e. a level of vertical integration. Consumers, sometimes referred to as the load,