U.S. Department of Energy Office of Energy Efficiency and Renewable Energy U.S. Department of Energy Energy Efficiency and Renewable Energy
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Variance Analysis of Wind and Natural Gas Generation under Different Market Structures: Some Observations

File: Variance Analysis of Wind and Natural Gas Generation under Different Market Structures: Some Observations

Date: 1/9/2012

Does large-scale penetration of renewable generation such as wind and solar power pose economic and operational burdens on the electricity system? A number of studies have pointed to the potential benefits of renewable generation as a hedge against the volatility and potential escalation of fossil fuel prices. Research also suggests that the lack of correlation of renewable energy costs with fossil fuel prices means that adding large amounts of wind or solar generation may also reduce the volatility of system-wide electricity costs. Such variance reduction of system costs may be of significant value to consumers due to risk aversion. The analysis in this report recognizes that the potential value of risk mitigation associated with wind generation and natural gas generation may depend on whether one considers the consumer's perspective or the investor's perspective and whether the market is regulated or deregulated.

This information was last updated on February 28, 2012