The Price Suppression Effects of Wind Power Generation in PJM Are Likely to Decrease the Profits of Pumped Hydroelectric Storage Facilities that Engage in Energy Arbitrage

摘要

The overnight hours in PJM are referred to as off-peak because the demand for electricity is reduced significantly. Since there is a strong correlation between the demand and price of electricity, its cost during off-peak hours is also reduced. Pumped Hydroelectric Storage facilities are able to take advantage of the daily price differential by buying low cost off-peak electricity, storing it for a period of time, and then selling it for a profit when demand and prices are elevated. This process is known as energy arbitrage. Wind power generators have low marginal costs, unlike traditional electricity generators that have to buy their fuel, thus their power production ends up suppressing hourly electricity prices. On average in PJM, wind power generators produce more electricity at night than they do during the day. So, although wind power generators suppress off-peak prices, the relationship between the load and the price of electricity causes an even larger price suppression of on-peak prices. The result is a decrease in the differential between minimum and maximum electricity prices and less energy arbitrage revenue being available to Pumped Hydroelectric Storage facilities.